Niobium Mining – The First Step in Building a Fighter Jet (Palisade Global Investments – June 3, 2016)

In what was probably the least publicized bidding war in mining history, fifteen companies took part in the sale of Anglo American’s niobium and phosphates operations located in the states Goiás and São Paulo, in Brazil.

In a strategy to alleviate its $26 billion of net debt, Anglo American eventually sold its Brazilian niobium and phosphates businesses to the China Molybdenum Co. Ltd. for a staggering $1.5 billion. The sale was part of a plan to divest more than half of its operations to focus on more prolific projects, and analysts rejoiced as the $1.5 billion price tag was 50% more than the expected sales price.

The niobium and phosphate operations had always been Anglo’s more lucrative divisions, but was a small contributor to the overall bottom line. In aggregate, last year the operations generated $146 million in earnings before interest, taxes, depreciation and amortization (EBITDA), niobium contributing $40 million.

In 2015, niobium production increased by 34% to 6,300 tonnes, reaching 69% of its nameplate capacity. In its annual report, Anglo expected capacity to increase to 9,000 tonnes and production to 6,800 by the end of 2016. The phosphate business produced 1.1 million tonnes of fertilizer, which was in-line with guidance and expected to be similar in 2016.

What is most astonishing about the niobium and phosphate operations is the life-of-mine these operations have. The total run-of-mine ore for the Boa Vista operations is 26.6 million tonnes at a grade of 0.89% Nb2O5, or enough running room for almost 20 years. The 17.1 million tonnes of phosphate tailings of 0.69 % Nb2O5 adds another 16 years. The phosphate operations are just as robust, with 214.1 million tonnes of proven and probable reserves at 12.5% P2O, or a life of mine of almost 35 years.

Needless to say, once these operations are up and running, it will be generating a lot of cash flow. Thus, it is no surprise that the niobium and phosphate operations were Anglo’s more profitable divisions. For this write-up, we will be concentrating on niobium as we believe there is a strong buying opportunity in this space and in our research, have found and invested in a company that is severely undervalued.

What Is Niobium? A Matter Of National Security

Like its name, niobium even looks boring. It’s dull and grey, but it has super conducting properties and when added to steel, makes it stronger and lighter, and is highly resistant to any sort of corrosion. For these reasons, niobium is considered one of the most important elements in today’s world. The majority of the world’s niobium is consumed in the form ferroniobium by the steel industry, which is subsequently used in construction and automobiles.

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