Investor interest in rare earth elements (REE) has exploded as of late, and for good reason. China controls up to 97% of the world supply of REEs, which are essential for use in modern technology. Prices are soaring as China slashes export quotas and shows a willingness to use these materials as a political tool. Alarmed governments throughout the world are increasingly concerned about securing more reliable sources of critical materials for strategic and security purposes. But there are other rare minerals, outside of REEs, which are also crucial to economic and national security. Niobium, for example, is among the most critical, but has received little publicity.
That is quickly changing.
WikiLeaks recently released a governmental list of 300 key foreign infrastructures and resources that are vital to U.S. interests. One item that came up multiple times was Niobium.
Yet Niobium is not commonly known in the investment world. It is an element, a rare metal with anticorrosive properties. The demand and price for Niobium has increased dramatically over the past decade. It has a growing amount of applications, from computer screens and camera lenses to automobiles and railroad tracks. It is a strong metal, highly resistant to heat and wear, which is why gas pipelines must contain niobium. But its primary use is a steel hardener. Much of the imported Niobium goes toward the creation of superalloys for use in the aerospace industry and for military applications such as missiles and jets.
Due to its relevance in aerospace and defense, Niobium is considered a “strategic metal” by the U.S. government, meaning there are few or no substitutes for the metal’s essential use. Furthermore, of all strategic metals, Niobium is regarded as one of the most highly critical. But its supplies are considered potentially at risk. This is because only a few sources throughout the world produce the metal. Almost 90% of the world supply comes from Brazil. Nearly all of that comes from only one mine. Most of the rest comes from the Canadian Niobec Mine, owned by IAMGOLD (NYSE: IAG).
Despite the significance of Niobium, the U.S is completely dependent on imports. But Peter Dickie, CEO of Quantum Rare Earth Developments Corp (QREDF.PK), plans to change all that and snag a share of the industry’s hefty profits. His company recently acquired mineral rights to the Elk Creek Carbonatite, a large 7 kilometer wide circular structure under the plains of southeast Nebraska. Elk Creek is a complex of carbonate materials hosting significant amounts of niobium and rare earths. The U.S. Geological Survey concluded that it “…has the potential to be one of the largest global sources of niobium and rare-earth elements (REE’s).”
The Elk Creek Carbonatite was actually drill tested in the 1970’s and 1980’s by Molycorp (NYSE: MCP). Although the project was seen as a big moneymaker (even at 1980’s metal prices), financial constraints forced the company to cut the project and focus on a mine called Mountain Pass, which is a world-class mineral deposit that ended up supplying most of the world’s rare earth for a time. Although Elk Creek was largely forgotten, for Dickie, acquiring the rights came down to being at the right place at the right time. Luckily for him, the data is still available from the 110 test holes Molycorp drilled. “The records are in phenomenal shape,” says Dickie. Results show that 40 million tons of high grade Niobium lie at Elk Creek. The data also reveals very significant intercepts of recoverable rare earth elements.
And there is plenty of profit to be made in the Niobium industry. The world’s largest mine in Brazil rakes in a $1 billion profit annually. IAMGOLD’s Niobec mine accounts for a large portion of that company’s bottom line. It also has an attractive operating margin nearing 40%, which pulls in about $19-$21 per kilogram produced. “The Elk Creek Carbonatite is structured quite similarly to Niobec”, notes Dickie. “The main difference is that Elk Creek is larger and is a higher grade.” Dickie plans on leveraging this higher quality Niobium and the proximity to U.S. markets to grab a significant portion of the domestic market.
“Niobium is necessary for the economic and national security of the country,” Dickie points out. Yet there are only a few sources of the material. And that clearly has Uncle Sam worried. The House of Representatives recently passed the Rare Earths and Critical Materials Revitalization Act, with broad support, by a vote of 324 to 92. The bill aims to enhance competition by supporting the domestic production of strategic materials—including Niobium. Although it may be a while before mining begins, Dickie hopes the ‘far reaching’ bill will help boost the development of Elk Creek.
Washington recognizes the value of Niobium and wants to secure domestic sources. This has Dickie excited, “We currently have the only potential domestic source of Niobium”. On top of this, it is one of largest in the world. “Some of the projects I’ve been involved with in the past initially looked extremely positive, but had lots of ‘if’s,” says Dickie. “This one doesn’t have the ‘if’s.’
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.