Commodities | Apr 21 2006
Tantalite is the ore of the metal tantalum. Over the past few decades tantalum has been transformed from a minor by-product of tin mining to a valuable resource as a direct result of strong growth in consumption. The development of tantalum capacitors, initially for military applications and more recently for use in the manufacture of portable electronic equipment, has led to growth averaging over 10% per year since 1992. The growth in demand for tantalum capacitors is expected to continue at these levels.
This introduction can be found on the website of Haddington Resources (HDN), a small Western Australian mining company specialising in the mining of tantalum. It’s no wonder the introduction has an optimistic air, as tantalite is used in the production of mobile phones and laptop computers.
But the spot price of tantalum has been falling recently which, in the current environment, seems somewhat extraordinary. Combine a falling spot price with ridiculously rising costs, and it’s no wonder Haddington has chosen to put its Bald Hill processing plant, south of Kalgoorlie, on care and maintenance for the time being.
Tantalite is by no means an abundant metal, and 60% of the world’s production has been coming out of Western Australia from mines owned by the infamous Sons of Gwalia – a company in administration since massive gold hedging losses. Haddington had been producing under contract with Sons of Gwalia, but that expired last month.
There are two major consumers of tantalite powder in the world – US giant Cabot, and Germany’s HC Starck, a subsidiary of Bayer. Being a low production metal, tantalite has always been sold under long term agreements with long term set prices. Currently, Sons of Gwalia is selling tantalite to the duopoly at US$65/lb or more. However, the current spot price is US$35/lb.
This is why production has become uneconomical for Haddington, no longer contracted to Sons of Gwalia. It is an expensive process at the best of times, and these are not the best of times on the cost side.
The obvious question is why has the spot price fallen when (a) every other metal’s price has rocketed and (b) there has not exactly been a drop off in phone and computer sales. The answer lies not in a fall in demand.
Haddington’s managing director, Colin McCavana, explains that the problem is twofold.
Firstly, the US military used to be major buyers of tantalite, as military applications were once a major use for the metal. To that end, the military stockpiled vast amounts of tantalite. Nowadays they don’t have as much use for it, and as such have been reducing stockpiles and selling into the market. This is part one of the supply-side glut.
Part two arises, unsurprisingly, in China. Tantalite powder is a material that must be made to a certain level of quality to satisfy the big consumers. China, on the other hand, has been churning out low quality product through its processing plants. China’s source of raw material is Nigeria, the Democratic Republic of the Congo, and nearby areas.
While together these supply-side factors have conspired to bring down the spot price of tantalum, the fact remains that not only are the major consumers unwilling to buy low quality product, they are good global corporate citizens. In other words, they refuse to support production that may involve child labour, scorched earth environmental attitudes, or exchange for arms. This counts out parts of Africa.
Opportunities thus remain in the tantalite market, and that is why Haddington has commenced an aggressive exploration program to establish new economic tantalite resources on its tenements at Bald Hill, the Pilbara and the Northern Territory. This program has commenced under an alliance with Mitsubishi and Zinifex (ZFX).
McCavana explains that if Haddington had five years of tantalum resource it would be in a very positive position. In the meantime, it is all rather unclear just what is going to happen to Sons of Gwalia. If the administrators were to put the assets up for sale, then a terrific opportunity would be available for Haddington and the alliance.
Haddington Resources last traded at $0.19.