DETROIT () -- I am regularly asked by my readers on Resource Investor how to invest in the relatively small production of the non-exchange traded specialty metals, which I frequently choose to write about, because, although little known to the investing community, they are critical to the continuation and growth of our industrial civilization.
I have always hesitated to suggest that small investors buy the shares of mining companies that produce these metals in small quantities either directly or as is more, and, indeed, most often the case as byproducts of the refining of much larger quantities of exchange traded commodity metals. Small companies that produce the metals in question directly can be wiped out by market volatility such as that which occurs when a previously widely used metal is suddenly substituted in its principal application(s) by a more common metal or alloy.
In the case of a byproduct metal it is almost impossible to invest in it directly, and, instead, the investor can only invest by putting money into the commodity metal company, which is extracting and refining the metal in question as a byproduct, and ride the volatility of the commodity metal instead. This linked investment can be avoided, of course, by purchasing the physical metal, but that is a very dangerous game for those who do not have an exit strategy for selling their physical metal before they buy the first ounce.
As an aside I will say at this point that for critical path risk management by industrial users in today's global metal economy where actual shortages for byproduct metals due to commodity metal linkage and resource nationalism are very real possibilities not buying physical metal may be as disastrous as buying it can be for the non-end-user investor (speculator).
Today's column is an assessment of a company, Umicore [Euronext:UMI], in which the reader is free to invest or not. I do not own shares of Umicore, but I would certainly consider them as an investment vehicle for the small guy to have an opportunity to gain from demand growth for the following metals.
In addition Umicore makes alloys from and the ultrapure chemical compounds of most of the metals listed above, which, as I have written before are used to make:
- Lithium Cobaltite electrodes for "lithium-ion batteries";
- Germanium ultrapure forms used to make the substrates for integrated circuit "chips," and;
- Platinum, palladium and rhodium high purity forms and salts used to make automotive emission catalysts as well as the platinum-rhodium alloys used to make the crucibles and extrusion molds used to produce high purity glasses and glass fibers used in electronic and photonic signal transmission.
The key thing you need to know about Umicore production of the above items is that it makes them basically from secondary (scrap) sources. It is therefore not dependent on processing huge volumes of primary metals but rather has the advantage of starting with "concentrates" of lithium and cobalt, for example, in the form of scrap batteries, with concentrates of germanium in the form of scrap electronics, and with concentrates of platinum, palladium and rhodium in the form of scrap automotive and industrial emission control catalytic converters.
Umicore began its corporate life more than 125 years ago as Union Mini`ere du haut Katanga. It was the Belgian company to which the fabulous rich high grades of copper, zinc, lead ores from the Belgian Congo were shipped for smelting and refining. Over the next century Union Mini`ere ultimately developed smelting and refining g techniques for many metals both the principal metals being sought and a host of byproducts. As Belgium's access to primary ores went the way of European empires in general the company began to specialize in recycling. Today the company produces 17 different metals from a feedstock of scrap batteries and electronics.
To start off the 21st century the company, in 2001, changed its name to Umicore, and its focus is now recycling. The Financial Times, earlier this week, stated that Umicore's Hoboken (Belgium) plant is the biggest in the world for specialized metals recycling. Umicore told the FT that it produces each year:
- 40,000 tonnes of lead;
- 20,000 tonnes of copper;
- 3,000 tonnes of nickel;
- 1,000 tonnes of silver;
- 50 tonnes of germanium;
- 30 tonnes of gold;
- 50 tonnes of platinum group metals.
It did not give figures for manganese, cobalt, lanthanum or cerium, but it must produce substantial amounts of these metals as they are contained either in emission control catalysts, or in one or more types of lead-acid, lithium-ion and nickel metal hydride batteries, all of these items are recycled at Hoboken in substantial quantities.
Just to give you an idea of the meaning of some of the above figures: Umicore today produces about 50% of the world's annual output of high purity germanium. In addition it produces 10% of the world's output of platinum group metals. It is now the world's third largest producer of coated automotive emission catalyst substrates, which it produces to match its customer's needs in hundreds of variations.
Umicore is a relative newcomer to the automotive emission catalyst production business, but it is the only one of the top three makers of this specialized item that produces its own coatings chemicals from its own, domestically produced from scrap, metal. Umicore is now finalizing another step in its vertical integration in the automotive emissions control catalyst business by acquiring the OEM and aftermarket catalyst business of Delphi.
This is a particularly important step for Umicore, because the main reason that Delphi decided to sell this business was that it has itself only been a coater onto substrates of platinum group metals by means of their salts; it, Delphi, did not own the platinum group metals, produce them, produce the salts for the coating process or recycle them. Delphi found that the entry fee in terms of capital for speculative inventory and specialized engineering skills was simply beyond its means, from the very first day that it separated from General Motors.
Umicore is the world's first closed loop manager of the platinum group metals used to make automotive emission control catalysts. It will thus be the world's most profitable maker of these materials.
Umicore also states that it is one of the world's largest producers of lithium cobaltite electrode material for rechargeable batteries. Again this production is from materials recovered from scrap and recovered at Hoboken.
Umicore is literally a high technology specialty metal mine as well as a vertically integrated producer of high tech metals, chemical compounds made from them, and alloys and products using the metals.
Umicore production of a variety of specialized non-exchange traded metals is not dependent on linkage to any particular commodity metal of which their metals are byproducts nor is Umicore's production dependent on any one specific mine.
Umicore is therefore to me the ideal way to invest in all of the non-exchange traded metals that it produces without being dependent on the value of any one of them. Its share price is a true value of the state of industrial production and technology in the region it serves.
Union Mini`ere du Haut Katanga has evolved into a remarkable company now called Umicore.