Recent events in the tantalum market demonstrate how turmoil in the U.S. and global financial systems and the spreading recession is disrupting supply for key mineral resources.
Squeezed by higher mining costs, Australia's Talison Minerals, one of the world's leading producers of tantalum ore, began negotiating with key customers to as much as double prices late last year. With an uncertain economic outlook, buyers down the supply chain, particularly in the key electronics industry market, took a hard line and refused. The stand-off finally came to a head late last November with Talison announcing that it would suspend tantalum ore production at its Wodgina mine, the largest in the world.
Tantalum refining and processing is a market sector long dominated by Cabot Corp. and H.C. Starck Gmbh but which now includes more recent entrants from China, Thailand and Kazakhstan eager to carve out greater market share. For the past five years, consumers of tantalum have benefited from a surplus of ore built up during the late 1990s and early 2000s, as well as regular sales of ore and refined tantalum products stockpiled by the U.S. Defense Logistics Agency ("DLA").
The former has now likely been all but worked off according to market analysts, however. The DLA sold the last of its tantalum minerals in 2007, and the last of its tantalum metal and oxide powders as of fiscal 2006, according to the U.S. Geological Survey ("USGS'). Additionally, recycling of tin ore from mine slag and dumps, which has accounted for as much as 30% of total tantalum supply in recent years, is now yielding diminishing returns and is suffering from relatively high recovery costs.
Tantalum is a critical element in the manufacture of high-quality electronic capacitors used in mobile phones, computers, video game consoles, digital cameras and a variety of other consumer electronics. It is also used in the production of turbines for the wind and aerospace industries, anti-corrosive materials and industrial tools.
The value of tantalum powder purchased by U.S. companies is expected to increase 2.1% annually, to $100 million in 2012, according to industry researchers at Freedonia. Hence, the breakdown of negotiations and Talison closing Wodgina may spark another spike in prices as buyers rush to secure new sources of supply. By the end of 2008, capacitor manufacturers were expecting the price of tantalum capacitors to increase anywhere from 13-40% in response to Talison's announcement, an electronics industry source was quoted as saying in a late January news report.
Even though it's difficult to obtain comprehensive, reliable estimates of processors and manufacturers' raw tantalum and refined products inventories, as well as the degree to which they are insulated from supply disruptions, there's little doubt that refiners are paying greater attention to those mining companies developing, or looking to develop, tantalum ore prospects.
Tantalum in Canada
Talison's withdrawl from the market forces refiners and buyers to look further down the supply chain to source tantalum ore from less secure, less reliable and problematic sources. That puts a premium on any new sources of supply that can be developed in stable countries.
With production totaling 45 tons, Canada was the third-largest source of tantalum ore worldwide for the past two years, according to the USGS. All of that mineral was produced by the Tantalum Mining Corp. of Canada (Tanco) from its mine near the Whiteshell Provincial Park, about 180 kilometres east-northeast of Winnipeg. A subsidiary of Boston-based Cabot Corp.'s Cabot Specialty Fluids, all of Tanco's output is bought up and feeds into the parent company's refining and processing subsidiaries.
With tantalum reserves estimated at 3,000 tons, Canada is also home to a number of prospective tantalum resources. Vancouver-based Commerce Resources' Blue River Tantalum-Niobium Project in east-central British Columbia, however, is the only one being actively explored and is one of the most advanced projects in the world.
In 2007, just before the global equity markets began to slump, the company raised $32 million through a private placement. This allowed the company to hasten exploration in 2008 and conduct its most extensive drilling program to date, consisting of 131 holes stretching 26,281 meters.
This year, as a result of the cumulative exploration success to date, the company will begin the process of aggressively moving the project forward, more specifically focusing on moving its Upper Fir deposit through the development stages towards commercial production.
"We are indeed fortunate to have built a solid financial foundation to navigate relatively unaffected through this more difficult economic environment," said Mr. David Hodge President of Commerce. "Our sound position enables us to push ahead with the development of our project towards commercial production. It is clear that there is a need for new tantalum production, particularly from stable political locations. We are focused on becoming the next producer."
As a first step towards development, last fall a 2,000 tonne commercial metallurgical bulk sample was extracted from several locations at the Upper Fir and stockpiled in preparation for processing by Process Research Associates. The results from this work will allow Commerce to commence and complete a preliminary economic or scoping study. The study will be a significant step towards production and will give the company an early indication of the economics of a mining operation at Blue River. If positive, it shall lead to the feasibility and mine construction stages.
"Commerce Resources is actually faced with a situation that is quite in contrast to the overall global economic environment," continued Mr. Hodge. "Tantalum is generally priced in long-term contracts that are negotiated between consumers and producers. There continues to be a strong need for tantalum for electronic applications as well as for the raw material to originate from clean origins."
"With the current economic environment, tantalum consumers are eager to secure additional sources of supply with price stability," he added.
Andrew Burger is a freelance journalist who has reported on the international mining and mineral resources markets for more than three years. Prior to journalism, Mr. Burger spent more than five years in the treasury and capital markets departments of a major Japanese bank. He holds a BA in geology from the University of Colorado, Boulder, and an MBA in finance from Pace University, New York.