Why NioCorp’s Elk Creek Niobium Project is Worth a Look

- June 11th, 2014

While Chris Berry favors scandium and graphene, Thomas Schuster is a fan of another rare metal: niobium.

Why NioCorp's Elk Creek Niobium Project is Worth a LookIn light of Chris Berry’s recent talk on disruptive technologies and critical metals at this month’s Canadian Investor Conference, investors may be looking to some of the rarer minerals on the market. Berry favors scandium and graphene, but Thomas Schuster, an independent consulting mining analyst for Jordan Capital Markets, likes niobium as well. 

In a Rocks to Riches equity research report dated May 15, Schuster looks at NioCorp Developments’ (TSXV:NB) Elk Creek project and the future of the niobium market. With almost 99 percent of global ferroniobium production coming from just three mines, the analyst anticipates strong demand for the strategic metal from the steel industry and a promising future for Elk Creek.

Certainly, one learns from the report that niobium deposits are few and far between, and demand from the steel industry is predicted only to increase in coming years. Those factors make Elk Creek a deposit worth keeping an eye on.

On niobium

Niobium, as Schuster explains for the uninitiated, is a rare, soft transition metal that is mainly used as ferroniobium in the production of high-strength, low-alloy steel. Virtually all of the world’s niobium is produced in Canada and Brazil, and NioCorp is the only company known to be developing a primary niobium deposit in the United States.

In terms of improving steel, ferroniobium is second to none. As well as making steel stronger and more resistant to corrosion, ferroniobium makes a significant difference in the weight of steel alloys. Schuster writes that, according to the World Steel Association, the addition of $9 of niobium to a mid-size car frame would result in a 100-kilogram weight reduction, lower carbon emissions and a 5-percent rise in fuel efficiency. That’s definitely important in light of global pressures to decrease emissions and become more environmentally aware.

Ferroniobium also makes a big difference for ships, and is being used in high-tech industries, aeronautics and medical fields. Although the analyst states that only 10 percent of the world’s steel production uses ferroniobium currently, he cites data from IAMGOLD (TSX:IMG), Roskill and other sources that suggests niobium in steel production is slated to grow over the next few years.

In terms of going rates, Schuster notes that there is not a terminal market for niobium. Buyers and sellers usually agree on a price, with contract prices for the metal not usually being disclosed. However, the analyst also points to data showing that the price of niobium has remained relatively stable over the years, weathering the 2008 crisis well in comparison to other strategic metals.

Overall, Schuster makes a strong case for the benefits of niobium, giving even more weight to the merits of NioCorp’s project at Elk Creek.

NioCorp’s Elk Creek deposit

Located in the mining-friendly district of Southeast Nebraska in close proximity to roads, power and water infrastructure, the Elk Creek property consists of 64 lease agreements over roughly 38 square kilometers. NioCorp has an interest in the property through a series of five-year, pre-paid mineral exploration lease agreements that include various provisions.

The deposit hosts barium and rare earth element mineralization in addition to niobium, but has been targeted for the latter metal due to the high grade of concentrations found in the host rock.

The deposit at Elk Creek was discovered through previous exploration by Molycorp (NYSE:MCP), with NioCorp securing the property in 2010. The company has since completed a mineral resource estimate and preliminary economic assessment, and as of June 3, has commenced a drill exploration project. NioCorp CEO Mark Smith commented, “[w]e have a very capable and experienced team working on the project, and I look forward to seeing results from our efforts in the near future.”

Smith, who was formerly CEO of Molycorp, owns 9.46 percent of NioCorp’s shares, and Schuster believes that this show of support is important to note. He writes that the CEO believes that Molycorp had managed a recovery of 50 percent Nb2O5 from Elk Creek and is confident that additional metallurgical test work could optimize recoveries to 56 to 58 percent.

The company intends to complete a feasibility study in the beginning of 2015. Schuster compares the project to IAMGOLD’s niobium operations in Quebec and uses several assumptions to make a few rough back-of-the-envelope calculations with regards to potential future net present values for NioCorp. Overall, his estimates show promising returns based on several different CAPEX and financing scenarios, with a pre-tax net present value per fully diluted share having the potential to fall between $2.97 and $6.17. Again, Schuster stresses that these figures are only his own estimates, and are based on assumptions regarding a number of presently unknown factors. Specifically, he points out that the future of Elk Creek is highly dependent on mining costs and the grade of the deposit.

 To be sure, critical and strategic metals investors will be watching for NioCorp to release drill results from this summer, and will be anticipating the release of the feasibility study next year.

As a final note, Schuster states that he was compensated only for his time in the writing of the research report regarding NioCorp. Also, Schuster notes that he currently holds securities in Nb. The analyst picks companies to report on based on merit, and his research is extremely valuable. Still, as always, we at the Investing News Network remind our investor audience that it is important to consider all relevant disclaimers and to perform adequate due diligence when considering investing-related news.


Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned in this article.

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