Niobec stake could be cash cow for Iamgold

Iamgold Corp. (IMG-T, IAG-N) made it clear back in June that it was looking to monetize 10%-20% of its Niobec niobium mine in the near term, but the sale last week of a 15% stake in a Brazilian niobium producer to a Chinese consortium has set tongues wagging again about the Quebec niobium mine and its value.

A group of Chinese investors including Anshan Iron & Steel Group, Shougang Group, Citic Group, Taiyuan Iron and Steel and Baosteel, have reportedly purchased a 15% stake in Companhia Brasileira de Matalurgia e Mineracao (CBMM) for US$1.95 billion.

CBMM is a private company and the world’s largest niobium producer. A group of Japanese and Korean investors purchased a 15% stake in the company earlier this year for about US$1.8 billion.

UBS Investment Research analyst Dan Rollins predicted in a note on Sept. 2 that the sale of a 10% stake in Niobec “could occur within the next couple of months” and estimates that “on a simplistic production based approach” Niobec “could be worth $1.06-$1.15 billion.” But Rollins also concedes that the valuation “fails to consider resource life; operating and capital costs; and control over physical supply.” He currently values Niobec at about $890 million, “which assumes a flat niobium price of $40 per kg ($550 million for the existing operation and an additional $342 million for an expanded operation).”

Earlier this year Iamgold filed a preliminary economic assessment on Niobec and said it would raise a portion of the capital to fund the expansion of the asset through the sale of a 10-20% stake in the mine. The intermediate gold producer with assets in West Africa, South America and North America also said that it planned to complete the expansion of Niobec without using any cash flow from its gold business.

The PEA outlined an increase in the annual niobium production from current levels to 15 million kilograms a year, with the potential for further production increases, and forecast that the remaining life of the mine could be more than 40 years at the expanded production rate.

The transition from traditional underground mining methods to alternate bulk mining methods outlined in the PEA is expected to roughly triple niobium production and improve margins, the company says. A prefeasibility study to examine which bulk mining methods will be the most profitable will be completed before the end of the year.

The underground niobium mine, about 200 km north of Quebec City and 25 km northwest of Ville de Saguenay (Chicoutimi), has measured and indicated resources of 1.93 billion kilograms of contained niobiuim pentoxide, or 458.1 million tonnes at an average grade of 0.42% niobium pentoxide.

The mine is the only source in North America of pyrochlore, the primary niobium ore, and one of only three major producers of niobium in the world, Iamgold says, noting the mine produces between 7% and 8% of the world’s niobium consumption.

The deposit was discovered in 1967 and started commercial production of niobium pentoxide concentrates in 1976.   

During its first 18 years of operation, the mine shipped its production as concentrates to companies in Europe, India, Japan and the United States, and sold to intermediate processors for conversion into ferroniobium.

In 1994, the mine started producing ferroniobium, which is directly marketed to the steel industry. Production of ferroniobium began after the construction of a plant to convert concentrates into ferroniobium.  

Niobium is used in stainless steel production and to improve the qualities of steel products. Steel containing niobium belongs to a class of steels known as High Strength Low Alloy (HSLA) steels used in the pipeline, construction, aeronautical and automotive industries.

In Toronto Iamgold closed up 56¢ or 2.7% at $21.57 per share. The company has been trading in a 52-week range of $16.11 and $22.69 per share and has about 375.3 million shares outstanding.