The man at the helm of Molycorp for 15-plus years, who helped to ignite a mania in the rare earths industry just five years ago, has bet big on a niobium project originally discovered by Molycorp.
Mark A. Smith has invested over $1.3 million personally for 8.4 percent of NioCorp Developments (TSXV:NB), which owns the Elk Creek project in Nebraska. He also assumed the CEO position in September 2013.
Smith is a big believer in the niobium market, and it is a market he professes to know a lot about.
In his first interview since joining the company, Mr. Smith tells us about the challenges he will have in developing NioCorp, and what the opportunity is for investors.
The first challenge Mr. Smith will face is educating the world about niobium.
“Contrary to my level of knowledge on it, it’s actually quite surprising to me how many people don’t even know what niobium is,” said Smith. “They don’t understand that every car that has a metal body out there contains niobium.”
Niobium is a powdery element that makes steel stronger and lighter.
Currently, only 10% of global steel production contains niobium. Smith says end users in the construction, automotive, aviation, energy and other sectors are demanding higher quality materials, and that Chinese steelmakers in particular offer a compelling growth opportunity for the commodity.
The market for niobium has grown steadily by an average of 4 percent to 6 percent in recent years, with the overall market now worth $4 billion annually. The price for niobium has also been steadily climbing, settling in the $40 to $45 per kilogram range over the past several years.
There is also the question of substitution. Vanadium has steel strengthening capabilities, too. Smith says roughly double the amount of vanadium is required to produce the same strength steel, but at substantially higher prices, making it an un-economic substitution. And in certain critical applications, such as high pressure pipeline steel, Niobium cannot be substituted.
Colin Rusch, Sr. Research Analyst with Northland Capital Markets in Minneapolis, gained notoriety for being an early supporter of Tesla Motors on CNBC. Mr. Rusch agrees with Mr. Smith, commenting, "Many investors are fundamentally missing what's going on in the steel industry as we see secular demand growth for lighter weight and stronger materials. There is not a cost effective replacement for niobium as a steel strengthening agent.”
There are just three operating niobium mines in the world currently, with 85 percent of the world’s supply coming from CBMM out of Brazil. CBMM is backed by the Moreira Salles family, considered Brazil’s richest.
CBMM is the cruise ship of the niobium industry because it can increase or decrease supply and affect price at anytime. Still, Smith sees this as a benefit, providing stability in supply and pricing, and believes NioCorp’s potential production will coincide with the market demanding additional material.
Smith has a long relationship with CBMM. Molycorp was a significant owner in CBMM from the 1960’s until 2007 and Smith was Molycorp’s “Shareholder Representative” to CBMM for several years, becoming “very friendly” with the stakeholders and management of the company, while gaining specialized knowledge of the niobium industry.
With so much supply coming from just one source, end users are also concerned with diversity of supply, Smith believes. “We certainly look at diversity of supply as we’re ordering materials for our company.”
Smith said he would consider approaching CBMM with the NioCorp opportunity when the project is further along.
The Elk Creek project is the world’s third richest niobium deposit by grade and is the only primary niobium deposit known in the US, according to the company.
The 100% NioCorp-owned project is located in southeastern Nebraska, a state with only one other operating mine, but Smith says Elk Creek has tremendous local support. NioCorp has appointed Tony Fulton, former State Senator from Nebraska, who reached term limits last year, to the company’s advisory board.
The project is next to a highway and a rail line and has all the infrastructure boxes ticked, Smith says.
Compelling track record
A lawyer and engineer by trade, the Denver, Colorado based Smith, 54, was a senior executive at Unocal Corporation, overseeing its mining divisions, including Molycorp, from 1984 onwards. When Chevron bought Unocal in 2005, Smith was appointed President and CEO of Chevron Mining shortly thereafter.
In 2008, a group of private equity and hedge fund backers bought the Molycorp rare earth assets from Chevron for $82.5 million and recruited Smith as their new CEO.
Smith then oversaw the re-opening of its Mountain Pass rare earths mine in California, as well as a massive awareness campaign around the rare-earths sector, which resulted in countless other rare earth companies being founded during the period, but none with the success of Smith’s Molycorp.
By the time Smith resigned in 2012, Molycorp’s market cap was $1.6 billion, with a peak value of over $6 billion in 2011.
“It’s all public knowledge, but the original investors in Molycorp did extremely well,” Smith said in our interview.
NioCorp, valued at just $17 million by market cap at press time, is too small to be a fit for those investors at this stage in the mine development process, Smith believes.
Smith would like to raise as much as $10 million to complete metallurgical optimization studies, and for infill drilling at Elk Creek with hopes to increase the quality and size of its resource for a feasibility report.
Smith says metallurgical recovery in the niobium space is key, and he hopes the company can increase its recoveries from greater than 50%, where they stand today, to as much as 58%, which will boost the project’s economics and demonstrate “world class” recovery.
“When I take a look at the share price today ($0.17 at press time) versus what will happen to the valuation of this company with a little bit of [good] metallurgy news and a little bit of [good] infill drilling news, then couple that with a feasibility study where all we’re trying to do is optimize the economics, I get pretty excited.” Smith continues, “I think this will be a very economic project.”
The capital markets for early stage mining ventures are unfortunately not as keen as Mr. Smith, with the TSX-Venture Index, a proxy for the junior mining sector, down roughly 75% since 2007, including a drop of over 25% in 2013 alone. Despite this, NioCorp’s share price increased 60% in 2013.
Smith himself has been the biggest buyer of NioCorp’s shares recently, with his $1.3 million + in purchases over the past year helping NioCorp to restart some of its development activities.
NioCorp has roughly 100.4 million shares outstanding, scattered amongst thousands of retail shareholders whom Smith will need to continue to re-energize as part of his go-forward plan.
While the market for mining stocks are out of favor, Smith says the Elk Creek project is a “gem” which more than makes up for any challenges. All options to finance the company are being considered in 2014, including the public markets, private equity, or even M&A.
“My experience in 33 years is that a good project with a good resource will find good financing. And I’m confident that we will,” Mr. Smith said in our interview.
With only three operating niobium mines in the world, Smith will have to utilize his experience and connections in the niobium industry if the company is to be successful.
His peers at NioCorp are also well versed with the commodity. Claude Defresne, one of NioCorp’s Directors, is a sought after expert on the niobium space. NioCorp President Peter Dickie, who previously led the company and recruited Mr. Smith, should be credited for finding such a high-quality replacement, and not discounted for his ability to tell the NioCorp story.
“I will only work with honest people and I’ve found that in the NioCorp management team,” Smith commented. “Everybody is 100 percent aligned in terms of what we’re doing and why and how we will get there.”
Mr. Rusch, the analyst from Minneapolis, investigated the NioCorp opportunity in late 2013.
"Of the potential mining sites for niobium, Elk Creek is extremely well positioned. Mark Smith's experience effectively navigating the concerns of local communities and some of the largest global corporations to develop sustainable projects is second to none. Our diligence on his work turned up an exemplary track record and reputation. We believe NioCorp's assets are very much in good hands.”
Smith’s passion for NioCorp is a refreshing sight in an otherwise depressed resources industry.
“I love to take a project like we have at NioCorp right now and build it into something meaningful and something that has purpose for the world. That’s what gets my blood pumping and I couldn’t be more excited to be where I am today in trying to help this company achieve its full potential.”
NioCorp has recruited an influential CEO who has done it before and has skin in the game. Next they intend to build the only niobium mine in the United States just in time for an increase in demand for the commodity.
“We have a gem sitting in Elk Creek, Nebraska.”
NioCorp Developments Ltd. trades on the TSX-Venture Exchange under the symbol NB, on the OTCQX under NIOBF, and in Frankfurt as BR3.
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