Tasman and Flinders seek merger — and lay down road-map for the critical metals sector
In what seems a striking new strategy, graphite and rare earths projects (and possibly tungsten, too) on Europe’s doorstep are to be merged into a new entity. All three materials are classified by the European Commission as critical, and all three are potentially available from Sweden — just an overnight truck journey from Sweden over the Øresund Bridge, via Denmark, to the metal-hungry factories of Germany.
Two Canadian-listed companies are now setting a fascinating new road-map for the rare earths and critical metals sector: the concept of building a diversified critical metals supplier, and therefore being less exposed to any market weakness in any one commodity.
Tasman Metals (TSX.V:TSM) and Flinders Resources (TSX.V:FDR) have begun what they describe as preliminary negotiations for a merger. Tasman brings to the table the Norra Kärr project in southern Sweden, one of the world’s largest known heavy rare earth deposit, and is now also looking at the recently acquired Yxsjöberg tungsten project. Flinders is developing the Woxna flake graphite deposit in central Sweden where initial production is scheduled for the third quarter in 2014. Woxna is expected to produce flake graphite at the rate of 10,000 tonnes a year. The mine operated between 1996 and 2001, when it was forced into care and maintenance by falling graphite prices. Woxna is fully-permitted and will require limited capital to get back into production — and able to supply Europe’s lithium-ion battery makers. Incidentally, Yxsjöberg is also a shuttered mine: it once produced 90% of Sweden’s tungsten needs.
Norra Kärr is enriched in dysprosium, yttrium, terbium and neodymium, all on Europe’s shopping list.
As we have reported many times, the Europeans are very concerned about the availability of certain critical metals, especially those where production is dominated by one or two countries. In the case of rare earths, graphite and tungsten, China dominates global output.
The joint statement from the two companies notes that, within Europe, there is a substantial degree of overlap between the industrial consumers of REE, tungsten and graphite. (In addition, Sweden’s engineering giant, Sandvik, is a large tungsten consumer; the metal’s main use is to provide strength in products like machine and cutting tools, its melting point being 3,410C. It should also be mentioned that Tasman has also been in contact with the Japanese government agency Jogmec —Japan Oil, Gas and Metals National Corp — where it was learned that Japanese industries have been finding great difficulty in acquiring tungsten and are taking a keen interest in Tasman’s Yxsjöberg.)
The statement says the boards of Tasman and Flinders believe a merged entity will provide a larger market presence, provide operational efficiency, and “deliver a much stronger voice in the global critical metals sphere”. Tasman brings with it an additional attraction: its dual-listing in New York (NYSE-MKT:TAS) which is an opening for institutions looking for critical metals exposure. In the other direction, Tasman President Mark Saxon says his company will benefit from the skills the Flinders team is gaining as it goes through the development process under Swedish laws and its negotiation of sales contracts.
Under the terms being considered, Tasman may acquire all of the outstanding common shares of Flinders on a yet to be determined ratio.
As I said near the start, the big story here is the concept of a company with multiple critical metal resources. The next important factor is the proximity to the European market, especially Germany. And then there’s another plus: the fact of Sweden’s low political risk compared with many other potential sources of these three commodities.
But don’t ignore Japan in this story, especially in relation to tungsten. Yxsjöberg is just one of six tungsten properties acquired by Tasman. The Japanese are investing in many tungsten projects around the world, including in Australia.
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