Tantalum is a very rare metal in the Earth's crust. We use this metal every time we fly, make a phone call, and ride in our cars. Tantalum is used to make electronic parts, heat-resistant glass, automotive catalytic converters, and corrosion-resistant and lightweight metal parts. The list goes on.
There are several mining, processing, trading, and manufacturing companies that source and use tantalum. One of the largest miners of tantalum is Global Advanced Metals, a private company in Australia. Through its alliances this company has a large impact on the rare earth metals market.
The company has interests in Australia, Brazil, and Africa. It was responsible for over 30% of the tantalum produced each year globally and owns one of the largest tantalum mines. The private company is 10% owned by ArcelorMittal (NYSE:MT) through its metals and mining trading subsidiary Traxys in Belgium.
Major pubic company competitors include Alkane Resources (ASX:ALK) in Australia, AMG Advanced Metallurgical Group, a Netherlands company, and Avalon Rare Metals, a Canadian company.
In 2012 Global idled its Wodgina tantalum mine in Western Australia. Other mine closings and conflict-induced supply disruptions highlight the extreme scarcity of this metal. Without tantalum the world comes to a screeching technological halt.
Why is tantalum so important?
Tantalum is found in trace amounts especially in Brazil, Central Africa, and Australia. It is non-magnetic, heat- and corrosion-resistant, an insulator, and it can hold an electric charge. It is this last property that is so important.
Insulators that can hold an electric charge are called dielectrics. These materials are at the core of a fundamental electronic circuit component called a capacitor. This component is responsible for the ebb, flow, and ultimate control of electricity in circuits ranging from computers to mobile communications.
Without tantalum, the miniaturization of electronic devices, especially in mobile communications, would not have been possible. The tablet I am writing this article on in large part is due to the existence and use of tantalum.
Tantalum and its chemical relative niobium are also used to strengthen lightweight steel. It is this property that is behind ArcelorMittal's recent announcement of a 29 lb car door. This is significant because an over 34% decrease in the weight of four car doors will improve fuel efficiency and reduce carbon footprint.
What happens when there's a tantalum shortage?
Weaker than expected handheld electronics demand and growing inventories in the tantalum supply chain combine to lower tantalum prices and downstream capacitor and parts markets. These conditions in turn can shut down and idle mines.
There are 150 kilotons of tantalum reserves worldwide. The Wodgina mine has capacity to produce over 3.2 million kilograms, or kg, per year. With the shutdown of the Wodgina mine, tantalum comes from Mozambique, Brazil, Congo, and Rwanda.
In 2012, 30% of the world's supply of tantalum came from the Wodgina Mine in Western Australia. Citing soft demand and delays in government approvals of mine infrastructure improvements, Global Advanced Mining shut the mine down.
When tantalum mines shut down, the market turns to minerals mined in conflict regions like the Democratic Republic of the Congo. The 2010 Dodd-Frank legislation required the SEC to develop and issue a rule that any companies disclose where and how they procured tantalum, gold, tungsten, and tin.
Tracing minerals is no easy task. As tantalum is extracted at the mine mouth, it gets packaged with sourcing tags. The tag will accompany the tantalum throughout its life until it reaches its final smelter destination. Any company that has "influence" over the tantalum supply chain must file a Conflict Minerals Report.
Supply traceability of tantalum means that tantalum prices should rise over the next two to three years to clear these new market imperatives.
Back to Global Advanced Minerals
Global acquired its Wodgina interests from Cabot Corporation (NYSE:CBT) in 2011. When it closed the mine in 2012, Global continued to invest in its African interests. These interests are in countries rife with armed conflict, warlords financing conflict with minerals, and rampant human rights abuses.
Wodgina is a conflict-free inventory available to collateralize any exploration and development opportunity in Africa and elsewhere.
Global uses Traxys to trade and finance tantalum and other rare earths it mines. Traxys is a private company 50% owned by ArcelorMittal, the steelmaker run by Lakshmi Mittal.
Since 2010, Traxys has had a 20% stake in Global Advanced Metals. With this stake Traxys has access to the mine as inventory it can use as collateral in its trading operations.
Tantalum prices rode high
From 2009 through 2010 tantalum ore prices were level at about $90 per kilogram. Through 2011 they rose to over $200 per kg. At this point Global shut down the Wodgina conflict-free mine.
Tantalum then moved even higher to over $275 per kg. This made exploration and development opportunities more valuable and mining companies like Cabot began to gear mines up.
The Wodgina mine has ridden a tantalum contango curve. Contango is when current spot prices are lower then current expectations of future spot prices. A trader that bought tantalum at $200 borrowing against tantalum inventory, and immediately sold 1 million kgs forward 180 days at $275 could reap a $75 million gross profit. That inventory is about half a year's production at Wodgina.
Global's partnership with Traxys and ArcelorMittal will allow Global Advanced Metals to grow revenues during uncertain demand cycles. In turn ArcelorMittal has access to key ingredients to its advanced high-strength steel product, critical to improving the demand for steel.