Niobium junior heads towards production

THIS niobium-focused junior has outlined a robust production scenario and secured major investor support on the verge of entering a strategic commodities space in dire need of supplier diversification. By Justin Niessner – RESOURCESTOCKS*
Niobium junior heads towards production Niobium junior heads towards production Niobium junior heads towards production Niobium junior heads towards production Niobium junior heads towards production

Cradle Resources Panda Hill in SW Tanzania


Cradle Resources is targeting niobium production at its Panda Hill niobium project, Tanzania, in 2017 after a string of successes, including positive prefeasibility results, a huge mineral resource expansion, encouraging pilot plant testwork and the cementing of a 50:50 joint venture scheme with one of Africa’s leading mine developers.

This traction is moving the Perth-based developer ever closer to first production at Panda Hill, where an operation valued at $US470 million is expected to deliver 4600 tonnes of niobium annually over 30 years.

Investors who can’t remember the last time a niobium mine went into production have nothing wrong with their memories. It’s been an astonishing 39 years since any new sources of supplies have come on line even though the $2.2 billion-per-annum global niobium market represents an industry three times bigger than graphite.

As a result, many investors remain uninformed about the sector as hidden opportunities are quietly exploited by the minority in the know. This is particularly true in Australia, where steel mills and alloying industries are less common than in the UK or steelmaking centres like Germany, the US or China.

Niobium is a soft, lustrous transition metal used primarily in the production of high-strength, low-alloy steels for a number of industries such as construction, car making, piping, tooling and high-tech machining. The niobium market is expected to grow 25% over the next six years.

Cradle’s plan is to join the extremely exclusive world of niobium production, which includes only three existing miners worldwide.

The largest player by far is privately owned Brazilian giant CBMM, which accounts for about 85% of the global market. Anglo American contributes 7-8% of world supply from its own Brazilian operations and Toronto-based Magris Resources, which recently bought the Niobec underground niobium mine from Iamgold, delivers the remainder from properties in Quebec, Canada.

This situation puts a desperately unbalanced emphasis on Brazilian supply in a sector intimately tied to well-understood technology and urbanisation growth patterns.

“The big steelmaking parts of the world haven’t got any niobium production – China’s got no niobium, Europe’s got no niobium, nor does the US. This makes economic niobium resources strategic” Cradle managing director Grant Davey told RESOURCESTOCKS.

“There’s not a whole lot of supply coming onto the market and we’ll be the next producer.

“You’ve got a lot of steel mills around the world trying to get niobium, and geographically, more than 90% is locked up in one country. Consumers don’t like that. They want diversity of supply. They want to be able to get their hands on it without being reliant on a few suppliers.”

Cradle knows that the tightness of the niobium market requires any ‘would-be entrants’ to have a light touch. With plans to output about 5000 tonnes of ferroniobium per annum, Panda Hill is targeting about 5% of the world market at an industry-average cash cost around $17-18/kg.

“We’ve designed our capacity so that we enter the market responsibly with additional supply,” Davey said.

Recent development work on Panda Hill has revealed potential for a high-margin business with a low operating cost in a stable commodity price regime. Prefeasibility work has indicated the operation would generate life-of-mine earnings before interest, tax, depreciation and amortisation of $103 million per annum.

Mining is planned to proceed by conventional open pit drill, blast, load and haul techniques. Production scheduling work has contemplated the first five years of operation sourcing solely from indicated mineral resources, with any inferred material or low-grade material to be stockpiled. A run-of-mine grade of 0.7% niobium is targeted for the first 10 years of operation.

The plant is planned to be expanded after the first five years of production to achieve an increased production profile to meet a ferroniobium market growing at a rate of 3-5% a year.

Total capital expenditure is estimated at $194 million (including $71 million for a process plant), with a payback period of only 1.5 years and total working capital costs of $37 million.

The internal rate of return was figured at 38%. To put these metrics in perspective, the proposed Elk Creek niobium underground mining project in the US was scoped in April to require $919 million in total capital, including $517 for processing, metallurgical and infrastructure costs. Elk Creek IRR came out at 16%.

Davey said these disparities between Panda Hill and its closest competing development helped illustrate the advantages of Cradle’s asset.

“Panda Hill is an open pit with a low strip ratio, while Niocorp has an underground project. Panda Hill has low initial capex requirements because of developed infrastructure in the area and a simple processing operation because of relatively simple metallurgy. To add to this we’ve got a highly technical $7 billion fund as a joint venture partner who’s ticked the box on the Panda Hill niobium project.”

This vote of confidence for Cradle comes from Denham Capital’s African mining-focused platform Tremont, which in turn is backed by Rob Still, a successful mining entrepreneur in Africa.

Still is the head of Pangea Exploration, an adviser to Tremont, which has developed at least 16 projects in southern and eastern African over the last 25 years.

He has been variously credited as a director for companies listed in South Africa, Australia, Canada and the UK, as well being crdited with taking a large number of African projects from exploration to production.

As of press time, Tremont had taken a 37.5% stake in Panda Hill and was on track to acquire a 50% interest as de-risking work, metallurgical tests for a 75t bulk sample and extensional drilling progress ahead of definitive feasibility results to be published later this year.

Tremont has committed $20 million to development of the project and is assisting Cradle in negotiating debt and offtake arrangements. Environmental certifications are well underway and the mining license renewal for a further 10 years of mining is in process.

“We’ve been successful in making sure this project’s value has been unlocked. Panda Hill is the only undeveloped niobium mine that makes economic sense in current economics in our view.

“Niobium deposits typically don’t make economic sense because of difficult metallurgy, low grades, low recovery rates and poor infrastructure.” Davey said.

Geologic advantages at Panda Hill, however, seem set to break a 40-year drought in niobium mine development. The mineralisation is considered relatively clean, with low levels of impurities and well liberated at coarse grind. A single-stage flotation method for producing a concentrate at 50-55% niobium will be applied. This level of simplicity is considered exceptional in niobium deposits, and may allow for the upgrade of materials produced.

Despite only about a third of the site’s carbonatite footprint having been drilled, resources stand at 178 million tonnes grading 0.5% niobium, with 26Mt at 0.7% niobium. In gold terms, this endowment represents the equivalent of a 15-million-ounce inventory grading 2.6gpt recovered. The mineral resource is open at depth and along strike, and an exploration target of 400Mt at about the same grade has been established. Geological mapping by Cradle last year suggest the possibility of lateral extensions along outcrops of carbonatite and magnetite-carbonatite which are mineralised at surface.

Davey also flagged jurisdiction as an important factor in the Panda Hill strategy. The project’s location provides for access to a dry port located in the southwest Tanzanian city of Mbeya (26km away), the Tazara rail line (2km away), Tunduma Highway (5km away), an Songwe Airport (8km away) and a cement factory (6km away). Growing Mbeya was founded as a mining town and boasts a number of technical colleges, medical facilities and a major fuel depot.

Cradle says the Songwe River and a planned 400 kilovolt power line have promised simple access to water and power as Tanzania more broadly realises its emergence as a major resources investment destination. Big names setting up shop in the country have included Acacia Mining (formerly Africa Barrick Gold), Anglogold Ashanti and just about every oil supermajor.

“The legislation is world class, the government is supporting diversifying into things like niobium and English is the language of business,” Davey said as development updates continue to culminate toward a looming construction phase which will employ regional engineers.

“It’s easily accessible to Asia and Europe and quite an easy country to do business in. It’s certainly in my top four countries in Africa to do business in. This is a real business and a mine that is going to be built. The prefeasibility results demonstrated a highly economic, world-class project. It’s an African mineral resource project that’s going to produce a strategic product.”

*A version of this report, first published in the July-August 2015 edition of RESOURCESTOCKS magazine, was commissioned by Cradle Resources.