The Beryllium Advantage: Texas Rare Earth Resources and/or a Materion Junior?
Some months ago I wrote an article on Beryllium, a subject I had not previously had much exposure to. In fact, like the famous Victor Kiam, I liked the product so much I bought the company Materion (NYSE: MTRN)… or rather a few shares and then when they soared I sold them. However, what I was left with, besides a monetary gain, was a fascination with the metal which is the only one in which the US has a total dominance of and the company that controls all that dominance. Such is that dominance that the market values the company at $764mn at the current time.
In 2014, I also wrote a few times about Texas Rare Earth Resources Corp. (OTCQX: TRER). The startling thing to me what that its Round Top asset had originally started out at a Beryllium prospect, with first Cabot Corp. and then Cyprus Mining doing the exploration work, and then crafting a mine plan in the late 1980s. In coming back to revisit the story recently I would note that TRER have moved forward with building their management team and the technology for the REE business, but that the investing public have largely overlooked the potential of TRER to become what one might call a Materion Junior. The two ways that this might happen are either by building the Beryllium vertical organically themselves or by dressing themselves (or that part of Round Top that is Be-rich) as a target for Materion or someone else. Materion faces the danger that if it does not have another project up its sleeve then it may go from being one day a rooster, next day a feather duster.
We thought it might be useful to revisit Round Top and its vicinity to see what might be done to cultivate the Beryllium angle while moving the REE-side forward simultaneously.
The Round Top Back-Story
The first records of exploration in Sierra Blanca date back to the 1970s when W.N. McAnulty initiated trenching and limited drilling of fluorite deposits in the vicinity of TRER’s project. The prospector identified beryllium mineralization associated with the massive fluorite. Adverse economic conditions for fluorite precluded development. In the 1970s, several uranium companies identified anomalous radiation and associated mineralization associated with the beryllium-fluorite deposit.
During the 1980s, Cabot Corporation, the major specialty chemicals company with a beryllium fabrication division, initiated exploration at Round Top for beryllium. In 1987, Cyprus Metals entered into a joint venture with Cabot and took over the project. The Cyprus exploration program drilled Sierra Blanca, Round Top and Little Round Top. The resources it identified consisted of:
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Eventually, Cyprus focused on the Round Top Project, specifically the “west end ore zone”. Extensive development drilling (82,000 feet), underground exploration drift (1,115 feet) and trial mining resulted in the completion of a feasibility study in June 1988.
During the Cabot-Cyprus development project, the Texas Bureau of Economic Geology conducted extensive research at Round Top and the surrounding area. The study identified beryllium mineralization and REE mineralization in the rhyolite.
Beryllium – A Brief Recap
Beryllium (Be) is a relatively rare element in both the universe and in the crust of the Earth. As a free element it is a steel-gray, strong, lightweight and brittle alkaline earth metal.
Beryllium increases hardness and resistance to corrosion when alloyed with aluminium, cobalt, copper (notably beryllium copper), iron and nickel. In structural applications, high flexural rigidity, thermal stability, thermal conductivity and low density make beryllium a vital aerospace material for high-speed aircraft, missiles, spacecraft, and communication satellites. Because of its low density and atomic mass, beryllium is relatively transparent to X-rays and other forms of ionizing radiation; therefore, it is the most common window material for X-ray equipment and in particle physics experiments. The high thermal conductivities of beryllium and beryllium oxide have led to their use in heat transport and heat sinking applications.
Who Makes It?
As mentioned earlier, the United States is the world’s leading source of beryllium. The Spor Mountain mine in Utah (owned by Materion) produced more than 85% of the 230 tpa of beryllium mined worldwide. It is thought that Materion mines 1% BeO ore at Spor Mountain (and reports 75 years of reserves at current mining rate). China produced most of the remainder, and less than 2% came from Mozambique and other countries.
National stockpiles also provide significant amounts of beryllium for processing. Three countries (China, Kazakhstan, and the United States) process beryllium ore. In 2005, the U.S. Department of Defense began a partnership with Materion to build a new processing facility in Ohio to produce high-purity beryllium metal. The processing facility was completed in 2011, and up to two-thirds of its output was to be allocated for defense and other government-related end uses. The United States imported approximately 34% of the beryllium raw materials it used in 2011, including beryllium metal and other processed beryllium materials used in manufacturing; two-thirds of this material came from Russia and Kazakhstan. This is clearly a less than ideal situation and makes a potential captive market for Be output from Round Top and gives the project national strategic importance.
Total world reserves of beryllium ore are estimated to be greater than 400,000 tonnes.
Pricing is usually set between the mine and the production facility based on the usual factors of supply and demand. Increased demand led to increasing prices for beryllium over the last decade. Based on the beryllium content in imported beryllium-copper master alloy, an alloy for which there is a reliable reported price, the USGS estimated the average annual price per pound of contained beryllium was US$230 per pound in 2010, up from US$154 in 2009. The metal is reputedly trading currently on the Shanghai Metals Exchange at $374,000 per tonne.
The Beryllium at Round Top
The current situation at Round Top is the efforts of Cabot and Cyprus left not only a data-set on the deposit but also physical infrastructure in the form of a “starter mine” (still usable and pictured below) consisting of a 867 ft long, 10ft x 10ft decline with vent fan & services in place.
Recently I waded through the Cyprus mine plan dating from 1988, which is still in the possession of TRER. In this iteration (Round Top only, the previous resource was three sites) the Round Top deposit represents a high grade mineralization – 298,000 tons at 1.9% BeO (non NI43-101 compliant) of contained Be of 11mn lbs.
The latest PEA from TRER envisages 36 tpa of BeO production. This would represent 7.4% of global production. This would be as a REE by-product.
When Cyprus did the work at Round Top the environment in which it was working was one in which the Brush-Wellman company (now Materion) had dominated US (and indeed international) supplies of Beryllium for decades. The report was written on the back of a perception that the owners of Round Top had gained from the marketplace that end-users very much wanted to see an alternative to Brush Wellman in the space. In fact, who wouldn’t want to have some price competition in such a tightly supplied metal? However thinking about it, it’s now some 27 years later and there is still not an alternative supply to Materion. Going back to the mine plan of those days, it is interesting to note that Cyprus felt that it would have a cost advantage at Round Top over production by Materion.
The metrics of the proposed operation by Cyprus were:
- One million llbs per annum of Be output
- Capex of $15.8mn (remember this is 1988 dollars)
- Opex was $236 per ton or $6.71 per lb
In light of global consumption of the metal and to not upset the market it would be better to use a smaller production number and interestingly they also gave a scaled down version (showing it was NOT Canadians doing it!). In the 300,000 llbs per annum version the capex was $12.6mn. Opex in this scenario was understandably higher because of lower economies of scale. These were $371 per ton or $9.59 per lb. Once again, it’s 1988 dollars.
Using an inflation calculator, the 1988 capex becomes $25.21mn while production cost of $9.59 becomes $19.19 per lb.
Let’s do a simple (or simplistic) equation for the USGS says that Materion had in 2011, some 33.5mn lbs of in situ Beryllium resources while Cabot had calculated 25mn lbs across three deposits and Cyprus had calculated 11mn at Round Top alone. While conceding that Materion had the value added chain and TRER as yet does not have any of that infrastructure we might also note that Round Top has a much higher grade. So if Materion is worth over $700mn in the market’s eyes then what is TRER’s Beryllium potential worth?
We would humbly argue that not only is TRER a fascinating REE opportunity but that it is also has the potential to be a scaled down, souped-up Materion Junior.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>