Tantalum: Investment Worthy Critical Metal ?

By Michelle Smith–Exclusive To Tantalum Investing News

At the Metal-Pages’ Minor Metals Conference in Beijing Jay Roberge of Equitas Resources (TSXV:EQT) said  there is no commodity in a greater supply shortfall than tantalum.

A shortfall of tantalum is significant because it is a critical metal. A resource is considered critical when its input is essential to the overall functionality of a product. The British Geological Survey, which has tantalum on its risk list, points out the such resources are needed to maintain an economy or lifestyle.

Those familiar with tantalum are likely already aware that it is an essential component for the electronics industry, which is the largest consumer. What may not be as widely realized is that this metal plays a central role in the ability to make gadgets smaller and more efficient. The masses may also be unaware that tantalum is used by a wide range of other sectors including the aviation industry, medical industry, and the military industry.

For investors, when a metal is deemed critical, it may seem like an obvious win. How can you lose when investing in a material or company supplying a material that is essential to the livelihood of people around the globe, one may ask.

Making investments based on that logic alone can be dangerous, especially for those who are not paying close attention to when they enter and exit a given market. One of the dangers is that users of critical materials, recognizing their plight, may begin investing in the development of technology that may at some point produce successful substitutions.

This was seen with palladium replacing platinum in exhaust systems. Even with tantalum, following a shortage in 2000, there was a notable shift from tantalum capacitors to ceramic capacitors. There are still some efforts to use aluminum, ceramic and other materials to replace tantalum, but it widely believed that where most substitutions can readily be made that it has already happened.

In many cases, where substitutions are currently possible, the alternate options simply are not as attractive due to the costs, that it would involve going against the trend toward miniaturization, or that it would result in less efficient products. Future tantalum use is also supported by the fact that in some applications there are no substitutes, such as with prosthetic body parts.

Further on the upside for tantalum is the fact that there is significant research and development efforts favoring the use of this metal. For example, in September, Kemet (NYSE:KME) introduced its Tantalum Stack Polymer Series, which allow numerous capacitors to be stacked on top of one another boosting capability without requiring more space. Cabot Corporation’s (NYSE:CBT) Supermetals is developing higher capacitance tantalum powers that make each gram more powerful.

Accessibility also plays a role in deeming tantalum critical. Most nations whose lifestyles and economies are heavily dependent on the metal do not have any domestic supply from mining. Instead they must rely upon supplies from a handful of locations.

Location and the production capability in those areas is not negligible. Prior to 2009, the Greenbushes and Wodgina mines in Australia were responsible for well over half of the annual global supply. Other sources included the TANCO mine in Canada and Noventa mine in Mozambique. However, all of these stopped producing.

Though those mines have made announcements regarding their reopenings, during their absence the significance of the few remaining sources of tantalum grew. One of them was the Democratic Republic of Congo. But, now, concerns about conflict tantalum and related legislation have a grip on the industry and supplies from that central African nation are being shunned.

Accessible supplies of abundant quantity are concentrated but over the past few years, one reason or another has hindered steady supply from a number of those locations. Though there is tantalum elsewhere in the world, mining of the metal is expensive and complex and attempts to bring new mines to fruition has been challenging.

The sources and players in this market are few, which may be attractive to those looking for more exclusive investments. Even if all of the plans for production increases and new mines were realized within the time frames that miners have announced, given the demand and the growth prospects for the tantalum market, the world is still a long way from the risk of an oversupply of tantalum.

Some investors may be aware and leery of the fact that tantalum prices dropped during the past global economic crisis. Critical or not, the metal is not immune to the reality of ups and down. And, the price declines during that period were caused by a medley of issues beyond the scope of this article.

However, returning to the fact that that which is needed cannot be forever be avoided, the market has seen a strong and encouraging recovery. Tantalum is sold in a variety of forms and the price varies with each. But as a hint of how things have changed– in January, 2008 and the price for tantalite basis 30% Ta205 was $45-47/lb. On Nov.1, 2011, the price range was $120-130/lb.

I, Michelle Smith, do not have interests in any of the companies mentioned in this article.