In one of our previous articles we highlighted the impending tantalum scarcity which could lead to higher prices. According to an article published by Dennis Zogbi, a respected Passive Component analyst, Talison Minerals suggests that an 80% increase in contract price may be necessary to continue to extract tantalum from the Wodgina mine in Wodgina, Australia at profitable levels. Talison Minerals owns and operates the world’s two largest tantalum mines, Wodgina and Greenbushes and controls an estimated 52% of the world’s primary tantalum supply.

According to Zogbi, Talison’s optimism is fuelled by capacitor manufacturers in Japan, the United States and Europe who have been contacted by Talison. Tantalum’s main end-user application is capacitors which are in turn used in a plethora of applications such as cell phones, DVD players, personal computers, digital cameras, gaming platforms, LCD monitors, wireless devices, telephone switch boards and computer networks. This much increased new price for tantalum ore is expected to be effective in January 2009 when their current ore supply contracts conclude.

Not surprisingly, the price increase would affect the entire supply chain in the electronics industry as capacitors are widely used in different stages. Tantalum capacitor manufacturers are bracing for the increase and are concerned that high prices may have an impact on their sales. However, end-users such as wireless handset, computer, and other electronic and metal alloys industries have little choice but to pay higher prices, according to Mr. Zogbi’s article. Mr. Zogbi attributes it to the unique combination of high capacitance and small case size availability of the tantalum, especially in the specific area of 100 to 1,000 microfarads, where competitive alternatives are limited.

It should however be noted that the rate of contract tantalum ore price increases have not been as much as those for other non-noble metals over the last 24 months. This is despite high operating costs such as fuel and electricity charges. Mr. Zogbi has highlighted that Talison is faced with having to almost double prices to extract the ore at a profit or face continued losses. Rather than resorting to the unthinkable option of mining tantalum altogether and using the existing resources at Wodgina, Talison appears to have gone for a price increase.

Meanwhile, China, one of the largest users of tantalum is looking for alternative supply sources particularly in Africa. Basing his observations on United Nations data, Mr. Zogbi has highlighted that Chinese tantalum metal powder and wire producers increased their imports from Africa at the expense of their Australian resources. Following the UN claims that Rwanda and the Democratic Republic of the Congo (DRC) use proceeds from tantalum ore sales to fund civil, major American and German tantalum powder and wire producers do not source tantalum from those countries anymore thus making the price increase particularly harsh on those.

So what does this mean to tantalum companies in other jurisdictions such as North America and Australia? Clearly, there is a supply shortage in the market and the UN report on its use in funding civil wars have prevented western companies buying tantalum ore from countries such as the DRC. The US Defence Logistics Agency stockpile has also been declining and has ceased to be a supplier. In the face of constrained supplies, tantalum companies in North America and Australia are expected to fill this gap.

While their existing projects are sometime away from production, increased tantalum prices would boost their valuations and project economics. That would also help them with their funding endeavours to finance their exploration and development programmes. As tantalum remains highly used material with no substitute, tantalum companies, even those engaged in development, may well benefit from the impending price hike. Companies such as Toronto listed Commerce Resources Corp (CCE), London listed Tertiary Minerals (TYM) and Australian listed Gippsland Limited (GIP) are three leading potential newcomers to the industry. All three companies have advanced stage tantalum projects.

Commerce Resources has its assets in British Columbia, Canada and is one of the most active tantalum explorers in North America. Brisk exploration and development activity is currently underway at its Upper Fir, Fir and Verity deposits. The company has approximately 29 million tonnes of indicated and 24 million tonnes inferred resources (NI 43-101 compliant). Their flagship project Upper Fir has approximately 23 million tonnes of indicated and 13 million tonnes inferred resources. The company intends to set up a processing facility in view of the potential access to the large US market.

Gippsland has two assets in Egypt namely, 40 million tonne Abu Dabbab and the 98 million tonne Nuweibi tantalum-tin projects located in the Central Eastern Desert of Egypt. Abu Dabbab is scheduled to start production in 2010 with an average production of 650,000lbs p.a. over the first 13 years. Having completed an Environmental Impact Assessment report, the company is presently negotiating Abu Dabbab project finance with a major international bank.

Tertiary Minerals has its Ghurayyah tantalum (-niobium and rare-earths) project in Saudi Arabia in conjunction with its Saudi joint venture partners. The company intends to set up a processing facility should they develop the deposit to a producing mine. – Proactive Investors