Technology Metals: The Forgotten Players

Brazil a future rare earth powerhouse? Poland a leading silver player anytime soon? India a forgotten graphite producer? And all that antimony in Bolivia! (And does anyone remember that large potash deposit lying under central Michigan?)

A browse through the latest commodity reports compiled by the U.S. Geological Service is a timely reminder for many of the complexity of potential supply sources of resources of various technology metals. Call them the forgotten players.

Antimony: In late 2013 a producer restarted an historic antimony mine near Reno, NV. A Canadian company produces the metal in the Australian state of Victoria, another mine in New South Wales is being brought back into production and, as we know from Christopher Ecclestone, hisGeodex Minerals is planning to get into producing antimony in Canada and elsewhere.

But we also know that China is, by far and away, the dominant player. According to USGS, that country accounted for 125,000 of the 160,000 tonnes mined worldwide in 2014. The next biggest player was Myanmar (the USGS still calls it Burma) with 9,000 tonnes.

But then go the USGS estimates of reserves. China still leads with 950,000 tonnes and there is with 350,000 (and producing just 7,000 tonnes last year) and, in third place, is Bolivia with reserves of 310,000 tonnes (and mining 5,000 tonnes in 2014). Then it’s a big drop-away to the next reserves figure, Tajikistan at 50,000 tonnes (and mining 4,700 tonnes last year).

Graphite: All these discoveries, all that exploration, all those off-take agreements — but very little showing up yet on the USGS database. No mention of Australia, Tanzania, , and various other countries where explorers are turning up graphite.

Of course, much of what has been reported from explorers so far comes into the category of resource rather than reserves, with only five countries listed as having the latter. China, as would you expect is in the lead, with 55 million tonnes. The No. 2 reserves holder is Brazil (40 million tonnes) followed by India (11 million). The only other listed are Mexico (3.1 million tonnes) and Madagascar (940,000 tonnes). In terms of production, only one country comes anywhere near China’s 780,000 tonnes last year, and even then India is a distant second at 170,000 tonnes.

But, in terms of reserves, expect that USGS database to undergo some radical revisions as the global exploration explosion firms up figures of new graphite resources.

Rare Earths: China, again, with 55 million tonnes left is in the lead — although one wonders about that figure, and it is somewhat meaningless anyway because it is not broken down into light and heavy elements, and so gives no clue to as the remaining reserves of the latter; and without the grades it is not much help. However, that is not the point of today’s exercise: rather it is to look at the other potential players. According to the USGS, Brazil has 22 million tonnes, Australia 3.2 million tonnes, India 1.8 million tonnes, the U.S. 1.8 million and Malaysia 30,000 tonnes.

As with graphite, this pecking order will change: Tanzania is just one country that will, at some stage, show up on the USGS table.

Niobium: There has not been any niobium production in the U.S. since 1959 and only Brazil and Canada make it on to the USGS table, although the agency notes that the U.S. has 150,000 tonnes of niobium identified resources, although in 2013 these were considered uneconomic. Tanzania could soon be added to the list with an Australian company having defined a decent- sized resource.

Silver: Yes, it is a technology metal, being in solar panels, medical equipment and used for water purification (among other tech things). Mexico and Peru are the big bananas in this business, and Australia has the world’s largest silver producing mine. But when we look under reserves, Peru is in the lead with 98.9 million tonnes, but then on second-equal are Australia and, surprisingly, Poland, both with 85 million tonnes still in the ground. Chile is fourth with 77 million tonnes. But Poland: even as someone who has been writing about silver for many years, this comes as a surprise.

Potash: Canada by a country mile, both in production and reserves (1.1 billion tonnes of the latter in terms of recoverable K2O). For the U.S. the report cites the Paradox Basin in Utah and the Holbrook Basin in Arizona as containing potash. But then here’s something you may not know: “A large potash resource lies about 2,100 metres (just under 6,900 feet) under central Michigan and contains about 75 million tonnes”. Not likely to be developed in the coming decade or two, given Russia, Belarus, Israeli and North American output and costs (or production near surface from salt lakes in the not too distant future), but something future generations might find comes in handy.

Chocolate lovers should stock up as Ebola threat sparks speculation in cocoa futures

Ebola and chocolate don’t have much in common; however, the price of the latter has become inextricably linked to the spread of the former. Chocoholics don’t have to visit West Africa to be affected by the Ebola virus; chocolate is at risk because the price of cocoa is skyrocketing. Fear of the Ebola virus spreading to the Ivory Coast, the world’s largest producer of cocoa, and to its neighbor Ghana, one of the fastest growing cocoa producers. Neither country have yet recorded any cases. Ivory Coast has long shut its borders with neighboring Liberia and Guinea, which supply many of the seasonal workers who would now have been arriving on the cocoa plantations to supply the labor for the harvest. The Ivory Coast produces an average of about 1.6 million tons of cocoa a year, 33% of the world’s total and the shortage of laborers combined with market speculation over the Ebola epidemic will send prices of chocolate products skyrocketing ahead of the Christmas season, when demand for the delicious bean is highest. Prices – and quality chocolate consumers – have already felt the shock on prices (cocoa futures have surged), while major international companies in the sector are organizing to raise funds to donate in aid to combat and prevent the virus.

The World Cocoa Foundation (WCF) has asked its 15 members, including Nestlé and Mars, to donate while Barry Callebaut, one of the largest international companies operating in Ivory Coast’s cocoa sector, have already adopted on the spot preventative measures for all employees. The Ivorian government has ordered the closure of borders with its neighbors since last August and September the cost of cocoa futures have surged from an average of between USD$ 2,000-2,700/ton to between USD$ 3,100 – 3,400/ton thanks to unfettered speculation in global markets. As is the case for so many commodities from oil to iron ore and agricultural basics, there are inevitable consequences for consumers. Financial speculators have already laid their hands on cocoa, whose crops in the Ivory Coast and Ghana have been threatened, but not yet touched by the Ebola epidemic. West Africa, hard hit by the Ebola virus, is an area dominated by agriculture. Agriculture is the leading productive sector and the major source of income for most of the population in the three countries where the virus has left its biggest mark while neighboring countries suffer the consequences. Their main products are palm oil, cereals, rice and cocoa are the main products, most of which are for export. Increased use of mineral fertilizers such as potash have contributed to the increased and more efficient cocoa bean production. Yara International has sponsored various initiatives in Ghana to train farmers on such ‘best practices’ as correct fertilizer application techniques to improve cocoa yields.

The epidemic threatens to generate some USD$ 33 billion dollars in losses in West Africa alone. The agriculture sector is the most affected by the spread of Ebola. Panicking farmers have abandoned the countryside leaving their plantations behind, especially cocoa plantations that are the most profitable for the area. In recent weeks, in fact, the cocoa bean has been the target of a kind of ‘splash and dash’ financial speculation on the international market. In late September, cocoa price levels were starting to match the record highs set in 2011 levels only to collapse dramatically in the first week of October. Cocoa bean futures touched record values at the London stock exchange (GBP 2,187 pounds/ton and USD$ 3,399/ton on Wall Street. Values ​​not seen since 2011, on the eve of the civil war in Ivory Coast. The enthusiasm, however, lasted for the space of a few days. The value has dropped to GBP 1,990 pounds in London and USD$ 3,079 in New York. This sort of swing reflects the kind of speculation borne in fear and crisis even though the numbers one and two in global cocoa production – Ivory Coast and Ghana – have not been touched by the contagion and have put in place preventive health measures to reduce the risk of infection, while speculators have been ‘banking’ on the high probability of the epidemic spreading from Guinea, Sierra Leone and Liberia. The main problem is that in October, the traditional month of the cocoa bean harvest, seasonal workers from Liberia and Sierra Leone cross the border with the Ivory Coast to find work in the plantations. Thousands of people who could act as a vehicle for the virus enter the Ivory Coast. The consequences would start at a quarantining of the country, closing of borders and an export ban. The risks, however, may still be overblown and several organizations consider the export bans as representing unjustified alarmism and peaks of a speculative game designed to trigger panic in the market, in order to reduce the price and check the conditions more favorable. The risk, many say, certainly exists, but it is quite low. The Ivory Coast has long since closed the border to Sierra Leone and Liberia and deployed a health cordon sanitaire. Moreover, the authorities have invested a lot of energy on prevention.

Measures that seem to work judging by the fact that since March, the month in which the Ebola virus reappeared in Guinea, there has yet to be even a suspect in the Ivory Coast. However, the cocoa plantations are located in an area of ​​the country in which it would be difficult to monitor the comings and goings of people, and this is the part that worries investors. The World Cocoa Foundation still believes that 2014 could still be a very bullish year for cocoa as the Ivory Coast has yet to revive forecasts that it will produce close to the 1.74 million tons collected harvested in 2011 after the civil war. But, should the Ebola virus cross the border and also affect the Ivorian population the consequences would be devastating and incalculable. Potash prices have stabilized and looking up

The gloomy clouds that cast shadows over the global potash market last summer after the breakup of the Russian/Belarusian BPC cartel have not collided and the stormy forecasts have changed for far more agreeable forecasts. The conflict between Russian and Belarusian potash producers threatened to flood the market with quantity, undoing the oil like cartel pricing system that has worked so effectively in the past decade. The reasons for the disintegration of BPC turned out to be more complex, extending far beyond potash into bilateral Russo-Belarusian relations. Close ties between the new president of Ukraine, Petro Poroshenko, and Belarus’s President Alexander Lukashenko, have not discouraged talks to revive the BPC cartel. In April, Lukashenko is believed to have held very “constructive” talks with new Uralkali co-owner Dmitry Mazepin about bringing back the Belarus Potash Company, or BPC, joint venture. Such a development would certainly help to boost potash prices to at least 2012 levels. The main obstacles are no longer political or diplomatic (the BPC breakup was a full scale diplomatic incident); simply, Uralkali wants to ensure that its shareholders get the best possible deal while moving the new BPC headquarters from in Belarus to Switzerland.

The potential for sanctions to be applied to Russian potash, meanwhile, remains even if so far, its importance to the European Union suggests this resource will be kept out of geopolitics for the time being. The EU issued a list of critical raw materials last week: phosphate (though more generally meaning mineral fertilizers) was one of the six. Uralkali, therefore, will experience only minor if any impact at all from Western sanctions against Russia. Its main focus is on the so called BRICS nations (Brazil, Russia, China, India, South Africa) where potash demand has been growing fastest.

Recent pricing statistics have only confirmed the bullish climate for potash. The average per ton FOB price per ton for potash at the Vancouver port, which was still 459 dollars in 2012 dropped to 379 dollars average last year largely due to the BPC related conflict. The predicted market flood did not occur, even if volume surplus exists and the average for 2014 is expected to hover around USD$ 300/ton (though mostly on the higher end of that plateau considering that both the CANPOTEX and former BPC partners signed contracts with China and India at above USD$ 300. The potash market is expected to remain in substantial surplus over the next five years according to Australian bank Macquarie, which predicts Canadian producers will increase production from the 15.88 million tons of 2013 to 17.42 tons in 2014. Russia and Belarus should also increase their supply in 2014.

Canada, Russia and Belarus hold three of them 90 % of global potash reserves. Canada alone accounts for 46% of proved reserves and probable reserves of 33% also according to Macquarie. The lower prices, however, have discouraged major projects, which will benefit the current majors and any junior potash company close to reaching production stage such as IC Potash (TSX: ICP | OTCQX: ICPTF) or Allana Potash (TSX: AAA | OTCQX: ALLRF). The three majors Potash Corp, Uralkali and Belaruskali, will simply expand existing mines. Chinese demand is expected to rise in the next few years, rapidly absorbing the predicted surplus.

Agriculture is the driving force behind potash demand and its consumption is linked to the needs of agriculture and varies with changes in agricultural prices. Potash helps increase crop yields, improve plant quality, reduce water needs and accelerate their growth. Lower agricultural commodity prices tend to reduce fertilizer demand; not surprisingly, demand or use of potash increases when its price drops. This period of ‘cheap potash’ will serve to get more farmers around the world using potash; the results will then convince them to continue using potash even after prices inevitably rise again. China, Brazil and the United States (on average using some 10 million tons each) use more than half of the 62 million tons of potash that Macquarie expects will be consumed in 2018. While, it makes the biggest ‘splash’ in determining price, China is only the third largest potash importer (6.1 Mt in 2014, 6.9 Mt in 2018).

The main importer is Brazil, while the main consumer is the United States, which imports as well as produces potash. Potash demand is rising fastest in such other major Asian countries as India, Indonesia and Malaysia – the latter two being driven by the large potash amounts needed to stimulate the cultivation of palms for palm oil (used in a number of applications and as a biofuel). Finally, the potash scenario in the near future may be summarized as one that will be marked by a slower growth of supply and improving demand, which will lead to a price recovery in the next few years.

Allana Potash one step closer to production with ICL strategic partnership

March 17, 2014 — Farhad Abasov, President and CEO of Allana Potash Corp (‘Allana’, TSX: AAA | OTCQX: ALLRF) in an interview with Tracy Weslosky, Editor-in-Chief and Publisher of InvestorIntel about the USD$ 84 million milestone deal between Allana and Israel Chemicals (ICL, TASE: ICL), one of the largest mineral fertilizer companies in the world. Allana is at an advanced stage in the Danakil Potash Project in Ethiopia; it has completed the definitive feasibility study (FS) and secured the necessary mining license needed to start construction of the mine itself.

Commenting on the ICL deal, Farhad said “this is the first time in many years in the sector where a real potash producer has become a strategic partner with the junior potash developer like Allana and it is a very important deal for Allana because it is comprehensive and includes three major components: cash investment, equity investment, a solid off- take agreement for 80% of our production and a full technical assistance from organization like ICL.” It should be noted that ICL is the world’s sixth largest potash producer; it sold about five million tons of potash in 2013 and has mines in Spain and Great Britain as well. In addition, Allana and Ethiopia are strategically located to serve the rapidly growing African demand for potash, where typically potash consumption has been low. Ethiopia, one of the world’s fastest growing economies, will guarantee significant sales for Allana. The country has ambitious plans and agriculture is its highest priority: “so we are really fortunate to be in a country that is not only grown fast economically but is that its government is fully supportive on this project and they’re also fully supportive of this new strategic partnership with ICL.”

Allana has met all its benchmarks and commitments to shareholders and while 2013 was an eventful year, 2014 could be even more interesting. In fact, Allana is at an advanced stage in the project, having already completed the definitive feasibility study (FS) in 2013, securing the necessary mining license needed to start construction of the mine itself. In 2014, apart from the ICL partnership, Farhad expects Allana will be “working on further financing most the debt financing on this project; it will do further optimization works on the project again technically, and mostly on the aquifer testing and some more solution mining work. Ultimately the goal for this year is to actually finalize full funding for the project so that we can start construction.”

One of Allana’s main advantages compared to other mining juniors – and not just in the potash sector – is that it is several steps ahead of the game in a market where most all are talking – usually complaining – about money. Allana has already secured two internationally well-known strategic partners such as the International Finance Corporation (IFC) and Liberty Metals and Mining. Farhad adds “and now we have another large industry player such as ICL”. In addition, Farhad says that “it is very important to emphasize here that besides the fact that they’re putting a lot of capital into the company and that they’re giving us a very strong and solid off-take, the technical assistance has to be stressed. ICL’s production profile in the Dead Sea in Israel is very similar to what we envision for our project in Ethiopia in terms of solar evaporation, processing and even transportation modes such as trucking. There aren’t too many companies that are similar in their production plans to what where planning to accomplish in Ethiopia so it’s a big coup for us to have such a partner as ICL”.

Farhad then speaks about the potash price and market in general, suggesting that the market situation will be tight for the next few years but that Allana welcomes this as a chance to restore some discipline in the sector as many new potash projects do not make much economic sense. As less supply than expected comes on line, prices should start to increase.

Disclaimer: Allana Potash is an advertorial member of InvestorIntel.