NioCorp Developments (NB.V) has raised $10.5M in cash through issuing 19.5M special warrants at a price of $0.55 per special warrant which can be converted into one common share and a full warrant with a strike price of $0.65 valid for two years. The funds will obviously be used to advance the Elk Creek Niobium project in Nebraska which could potentially be one of the most lucrative niobium mines in the world.
There are however some issues NioCorp will have to work around with. First of all, the Niobium market is dominated by the Brazilian CBMM Group which accounts for roughly 85% of the world production. As its mine has a very high average niobium grade with humongous resources, CBMM will continue to be the most dominant player in the Niobium-industry. This is also a huge risk, as CBMM has the possibility to price other producers out of the market. We discussed this potential issue with NioCorp’s CEO Mark Smith and he doesn’t see any problem as he maintained excellent relationships with CBMM and is still in touch with the Brazilians. A second potential issue is the recent sale of IAMgold’s (IMG.TO, IAG) NioBec mine which accounts for slightly less than 10% of the world production. As the buyers seem to have paid top-dollars for it, it’s very likely they would prefer to see the mine increase its output to reduce the payback period. This, however, could have a nefast influence on the ‘standstill’-situation in the Niobium world. Although the impact would remain limited (a 50% production increase would only have a 4% impact on the world market), let’s hope that any decision to increase NioBec’s output will increase the competition in the sector.
We have to admit the Elk Creek project looks very impressive and if you compare it with NioBec, its economics will be excellent with an operating margin which could potentially reach 50%. The feasibility study is expected in Q2 2015 and we are expecting to see robust economics as the project can tap into already existing infrastructure. The final permits should come straight after the feasibility study as NioCorp has already started its permitting process in the second quarter of this year.
This could be a success story if CBMM doesn’t want to play it hard and allows a fourth participant in the niobium market. As this would solve several antitrust issues they currently have (exactly because they dominate the niobium space), it’s even not unlikely they would actually appreciate a fourth entrant in the space. And as NioCorp’s CEO owns roughly 10% of the outstanding shares, his interests should be aligned with the shareholder’s interests to move this project towards production.
Disclosure: The author holds no position in NioCorp. Please see our disclaimer for current positions.