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NioCorp Developments has been busily putting out great drill results this year, and released an updated resource estimate for its Elk Creek niobium deposit this fall. However, the company had good news of a different nature on Monday — it’s secured an offtake agreement with Germany-based commodities trading company ThyssenKrupp Metallurgical Products.
Under the terms of the agreement, ThyssenKrupp will purchase roughly 3,750 metric tons of ferroniobium from Elk Creek, or about 50 percent of planned production for the project. The agreement is for an initial 10-year term, but there’s an option to extend beyond the initial time frame. ThyssenKrupp will also be NioCorp’s exclusive sales agent in Europe, and will work closely with the company to support its project financing.
Shares of NioCorp steadily rose following the news release on Monday, and were up just under 16 percent, at $0.81, by close of day. The company is up 440 percent year-to-date.
Vote of confidence
NioCorp CEO Mark Smith previously served as CEO of Molycorp (NYSE:MCP) and before that, as a director of Companhia Brasileira de Metalurgia e Mineração, which produces about 85 percent of the world’s niobium. When asked how NioCorp was able to secure an offtake with such a large company, Smith replied that after being in the business for 33 years, he has “a pretty good contact list.” Niobium, and specifically ferroniobium, is important for producing high-strength, low-alloy steel, and NioCorp currently has the only known niobium deposit in the United States.
Certainly, an offtake with a major player like ThyssenKrupp signals a strong vote of confidence with regards to Niocorp and Elk Creek, but Smith was quick to point out that there are other positive parts of the agreement as well.
Smith noted that the agreement “does make [NioCorp] eligible for certain German government loan guarantees, which will help project financing.” To be sure, the release states that ThyssenKrupp’s financing support of NioCorp “explicitly includes not only debt, but also possibilities of equity financing and potential government loans.”
What about the warrants?
The deal also grants warrants to ThyssenKrupp, and if the company exercises its right to acquire 8,569,000 common shares of NioCorp at C$0.67 per share before December 12 of next year, NioCorp could stand to receive US$5 million in funding.
Analyst Thomas Schuster of Jordan Capital Markets noted that it’s unusual for big companies to have such warrant agreements, and echoed Smith’s sentiment, stating, “[t]he fact that there isn’t a feasibility yet and a major company has basically made an investment in a junior to secure 50 percent supply for a ten year period, that’s a significant vote of confidence.”
Commenting on how the warrant agreement might affect existing shareholders, Schuster said, “[i]t does dilute, but not that significantly … it’s like another financing.” Overall, he sees it as a good strategic move given that the deal is “bringing a major partner in.”
Moving forward
As noted in NioCorp’s release regarding the agreement, the deal is conditional on the company completing its feasibility study and permitting for Elk Creek, as well as obtaining financing and building the mine. Smith, who currently owns about 10 percent of the company, said he is “extremely confident” that NioCorp will reach those milestones.
For his part, Schuster doesn’t see many roadblocks on the way to production. Though he admitted that there could be a few delays since underground mining is still relatively new for Nebraska, he noted that “the state is quite keen on having NioCorp there,” and said that the company is working hand in hand with multiple stakeholders, including officials, NGOs and politicians, to move the project forward.
The company expects to conclude the feasibility stage at Elk Creek during the first half of 2015, and Schuster said that it’s entirely possible that there could be further offtake agreements in the company’s future. The analyst stated, “the first [agreement] was a major step forward and it just confirms the market and the quality of the asset … my guess would be that they’ll look for [other deals] especially with respect to financing.”
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned in this article.
Related reading:
Charging Ahead: NioCorp Developments Releases Updated Resource Estimate
Why NioCorp’s Elk Creek Niobium Project is Worth a Look
Full Analyst Disclosure: (Taken from Thomas Schuster’s Rocks to Riches Equity Research Report on NioCorp Developments from May 2014. Schuster owns shares in NioCorp that he purchased in the market, not through a financing. He purchased shares after researching and writing the May Rocks to Riches report and was paid by Niocorp only for his time to write the report. Thomas Schuster has no other arrangements with NioCorp to promote their stock.)
All references to material contained in this Rocks To Riches report is public information sourced from the company’s website, press releases, personal communication with Management. Thomas Schuster, the author of the Rocks To Riches Report, and principal of TMS Enterprises, was only compensated for his time to write this report about Niocorp Developments. Thomas currently holds securities in Nb.
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