The Conversation (0)
Certainly, NioCorp Developments has been a darling in the mining space as of late. However, ever since the company announced the much-anticipated results of its preliminary economic assessment (PEA) for Elk Creek on April 13, the company’s share price hasn’t been doing so well. NioCorp’s stock dropped about 23 percent on April 13, and has lost about 49 percent, or 75 cents overall, since that date.
Following a slew of impressive drill results and resource updates from its Elk Creek Niobium project in Nebraska – and the announcement of an offtake agreement with Germany’s ThyssenKrupp – the company was named the top TSX Venture 50 company for 2015 and has now graduated to the TSX. Last week, NioCorp made it into the OTCQX’s 2015 Best 50.
However, ever since the company announced the much-anticipated results of its preliminary economic assessment (PEA) for Elk Creek on April 13, the company’s share price hasn’t been doing so well. NioCorp’s stock dropped about 23 percent on April 13, and has lost about 49 percent, or 75 cents overall, since that date.
On Tuesday, NioCorp filed the technical report on SEDAR and shares of the company lost another 4 cents to close at $0.77. Trading volumes were a little over twice the daily average for the company.
Certainly, the market hasn’t reacted well to the results of the PEA. At least one market watcher expressed his disappointment on Twitter:
Wheels have fallen off on #NioCorp #shortstocks #sell #ElkCreek #Niobium https://t.co/76Gusky8qF $NB $NIOBF
— Schtev (@schtev69) May 21, 2015
And Mining Journal (subscription) titled its piece on the news “Niocorp’s Elk Creek PEA disappoints.”
Taking a look at the numbers, initial capital expenditures for Elk Creek are set at approximately $919 million for an after-tax net present value (NPV) of $606 million at an eight percent discount rate. Over its 36 year mine life, Elk Creek would produce 7,500 tonnes of ferroniobium annually. NioCorp’s April 13 press release also stated that Elk Creek would put out 23,000 tonnes of titanium dioxide and 12.8 tonnes of scandium trioxide per year.
After NioCorp provided an update that increased the project’s NPV, internal rate of return (IRR) and pre-tax cash flow (a calculation error meant that some of the project’s revenue wasn’t initially accounted for) the after-tax IRR still fell below 15 percent. While the company stated that the project is “net NPV positive through sensitivities of +/- 25% on operating cost, capital cost and recovery,” John Kaiser of Kaiser Research wasn’t positive on the number.
“As a general rule, the NPV should match or exceed the Capex,” he said, noting that for PEAs, in many cases, “the error is usually on the side of understating cost and overstating the recoveries.”
Explaining further, Kaiser pointed to the portion of project’s revenues that are set to be derived from titanium dioxide and scandium oxide production, stating that he was hesitant regarding the $3,500 per kilogram scandium price used. “They were using a $3,500 price for scandium oxide when others that have done PEAs on that are using $2,000,” he stated.
NioCorp’s report stated that the range of pricing for scandium oxide was US$2,000 to US$5,000 per kilogram, and that it had taken an average of US$3,500 for its financial analysis.
Kaiser also pointed out that buyers of titanium dioxide – the majority of which is used in paints – are very picky about purity levels. “And they stick the cost of achieving the right purity onto the company,” he said. While NioCorp pegged higher purity as a positive, stating that “[p]otential upgrade to the quality of the titanium dioxide produced to a pigment grade product could have a positive impact on market price,” Kaiser’s point is certainly worth considering as well.
For its part, NioCorp was positive on the results of its study. “As we noted in our April 13th press release, we view the PEA results as an important milestone for the development of the Elk Creek Resource.” said NioCorp executive chairman and CEO, Mark Smith, in Tuesday’s release. “With the full report now published, everyone can see the level of detailed analysis that has accompanied our work plan to date and we look forward to the completion of the feasibility study for the project.”
Certainly, investors and market watchers will be keeping an eye out for further updates from the company.
Click here to view the full preliminary economic assessment for Elk Creek.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.