Niobec stake could be cash cow for Iamgold

Iamgold (IMG-T, IAG-N) made it clear back in June that it was looking to monetize 10% to 20% of its Niobec niobium mine in the near term, but the recent sale 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 & Steel
and Baosteel have reportedly purchased a 15% stake in Companhia Brasileira de Metalurgia 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 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 estimated that “on a simplistic production-based approach,” Niobec “could be worth $1.06 billion to $1.15 billion.” But Rollins also conceded that the valuation “fails to consider resource life, operating and capital costs and control over physical supply.” He valued Niobec at $890 million, “which assumes a flat niobium price of $40 per kilogram,” with $550 million for the existing operation and an additional $342 million for an expanded operation.

Earlier this year Iamgold filed a preliminary economic assessment (PEA) on Niobec and said it would raise a portion of the capital to fund expansion through the sale of a 10% to 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 Niobec’s expansion without using any cash flow from its gold business. 

The PEA outlined an increase in 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 triple niobium production and improve margins, the company says.

A prefeasibility study to examine the most profitable bulk mining methods will be completed before the end of the year.

The underground niobium mine, located 200 km north of Quebec City and 25 km northwest of Ville de Saguenay, holds measured and indicated resources of 1.93 billion kilograms contained niobium 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 producing niobium pentoxide concentrates in 1976.   

During the first 18 years of operation, the mine shipped its production as concentrates to companies in Europe, India, Japan and the U.S., 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 a plant was built 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” and is used in the pipeline, construction, aeronautical and automotive industries.

At presstime Iamgold was trading at $22.73 per share. The company’s shares have been trading in a 52-week range of $16.11 and $22.69 per share. It has 375.3 million shares outstanding.