EDITOR: | May 13th, 2015 | 22 Comments

Tantalus reaches another milestone with another rare earth offtake agreement

| May 13, 2015 | 22 Comments
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OLYMPUS DIGITAL CAMERATantalus, AG, a German rare earth junior miner with a mostly ionic adsorption clay deposit on the Indian Ocean nation of Madagascar that last month announced an off-take agreement with the Chinese, Shanghai exchange listed, vertically integrated rare earth magnet producer, Shenghe Industries, has announced today that it has now executed a second off-take agreement. This time with Thyssen-Krupp Metallurgical Products, the long established global metals and alloys trading unit of German steel giant, Thyssen-Krupp.

The two off-takes now in force are each for 30% of Tantalus’ output for an initial period of three years at full production renewable for additional terms of 7 years by mutual consent. Perhaps the most important aspect of these two agreements is that each off-take receiver in order to get the 7 year extension has agreed to finance the development of the deposit into a producing mine in an amount proportional to their off-take percentage. This, of course, indicates a high degree of confidence, by large and experienced global players in the rare earths trade, in the probability that the company will be able to put the Madagascar deposit into production beginning by late 2016 and ramp up the output to the full target amount of 10,000 tpa by 36 months after start-up.

Tantalus capex for the project as well as its opex are among the lowest proposed so far, and for their output size are the lowest I have ever seen for a non-Chinese project while their predicted profit margins are impressive. Their target date to begin production is also the nearest in time of any project I know of.

Perhaps the most significant aspect of the Thyssen-Krupp off-take is the fact that they have been granted exclusivity for Tantalus products are to be exclusively sold into the German domestic market.  T-K M is a member of the well known German Rohstoff Alliance and my guess is that it will be offering its allocation to other Alliance members.

Those of you who follow the announcement circus of the rare earth juniors will recognize that the German Rohstoff Alliance is a group that almost every rare earth junior has approached and been rebuffed by. German manufacturers maintain the manufacturing world’s tightest specifications for quality, on-time delivery, service and price among the world’s manufacturing industries.

Investors should note that Tantalus is a public (German) company, and that its shares traded yesterday on the Dusseldorf exchange at a price of 16 euros, a figure that no other rare earth junior can match.

Tantalus has been invisible to North American investors, because it doesn’t as of yet market its shares in North America, and its announcements are few and far between although they are always significant.

The Tantalus project on Madagascar has been in development for more than five years. I was on its supervisory board of directors from 2011-2013. I resigned from the supervisory board as its vice-Chairman in August, 2013. Its current chairman, Mr Ulrich Krauskopf was my colleague then and is my friend now. The board and highly competent management team have guided the company’s development to a venture that is the right size, and their combined years and extensive contacts in the International and German metallurgical industry assured that Tantalus was designed to produce what the market(s) want and in quantities and qualities dictated by the needs of those markets.

All but a very few North American rare earth juniors have overspent and thereby wasted their investors’ capital trying to emulate the major miners. Tantalus, has instead, worked with its potential customers from the first day so as to become a valued and reliable supplier of the right size. This cannot be emphasized enough it is the size and cost of the output of a rare earth venture that determines success or failure not the grade of its deposit.

The cost of separating the rare earths depends in great part on what extractive and pre-separation separations it takes to prepare a clean PLS for ultimate mixed rare earths separation into individual elements

The Tantalus deposit is one of the closest in type to China’s ionic adsorption clays. This makes the extraction of the mixed rare earths far easier and far less costly than hard rock mining.

Thirty percent of Tantalus output is already sold and dedicated to the Chinese domestic market and thirty more percent is now sold and dedicated to the German domestic market. I doubt that the remaining forty percent will be hard to pre-sell, and I suspect that some North American and Japanese global100 corporations are sharpening their pencils and doing the math already.

Marketing of the rare earths is not of the “we will mine it and they will buy it” type as so many Canadians and Americans thought. It was the very first thing that Mr Krauskopf addressed when he joined the company’s board.

Knowledge, experience, skill and contacts have now brought Tantalus to the brink of success.


Jack Lifton

Editor:

Jack Lifton is the CEO for Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. Technology metals ... <Read more about Jack Lifton>


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Comments

  • bearcat

    Jack: Compared to Tantalus, North American ree miner wannabes appear to be developmentally disabled. Relative closeness to East Asia is a plus but not a big one given the profoundly inexpensive nature of oceanic shipping for bulk commodities. More problematic is difficult transportation within the country and its less developed world national government. The ore is a plus but is it primarily the skillful management that has allowed the company to move forward so quickly? If so, why haven’t North American hopefuls learned by example? Here back home most locals sometimes don’t seem to realize that time is of the essence given the few ree miners will be needed to meet world demand for some time.

    May 13, 2015 - 12:40 PM

  • Jack Lifton

    Bearcat,

    America’s domestic markets in our lifetime were up until just a short while ago so vast (producing 25% of the world’s GDP with 5% of the world’s population) that our businessmen simply didn’t care about foreign (i.e., global) markets or competition from foreign manufacturers and traders. In the last twenty-five years another formerly inwardly drawn nation, China, has adopted a state sponsored capitalism to further its political agenda of socialism and communism. China suddenly (to sleeping Americans) now dominates the world’s manufacturing; it uses today nearly 60%(!!) of ALL new metals produced. So, what was the first response of the American fat cats? It was to compete with the Chinese in the production of raw materials intending to replace them, the Chinese, as suppliers for a vanished domestic American marketplace. American “businessmen” failed to note Chinese oversupply and overcapacity in the rare earths sectors and wasted billions.
    Europeans and the Japanese not having the luxury of domestic raw materials had to figure out how to maintain their domestic industry while competing in the Chinese dominated commodity demand markets. The did and are now bringing equilibrium to their home markets.
    Wall Street which does not have a clue how to COMPETE globally simply throws other people’s money at the loudest braggarts and then when the widows and orphans have been milked dry it proceeds to try to kill its own children by starving American industry of capital.
    The North American junior rare earth space has just a few good deposits of the rare earths that are needed not only by the Chinese but for any hope we have of reviving our domestic rare earth supply chain. Among the most innovative of the few are RER, Ucore, and TRER. Each of them is trying to bring their products to the market in forms specified by the customers and competitively with China. There is NO OTHER WAY to do this.
    Americans are no less resilient than Europeans or the Japanese. Notwithstanding the greed and stupidity of Wall Street we will muddle through, because we are very innovative.
    Any questions?

    May 13, 2015 - 2:39 PM

  • Jeff Thompson

    Jack,
    Do you see agreements such as the Tantalus one as undercutting the efforts of companies such as TRER, Ucore, and RER to get into production by adding more capacity to the market? Or does the nature of the agreement being exclusively to German markets keep the economic incentive just as strong for North American companies?
    Regards,
    Jeff Thompson

    May 13, 2015 - 7:57 PM

  • Jack Lifton

    Jeff,
    As you have surmised the Tantalus agreement, so far, is for the benefit of the Chinese domestic market and for the European market. The Tantalus agreement I hope will be a beacon for the 3 surviving American juniors; it really shows the direction they need to take.

    Determining just who are the customers for the particular products they can produce and exactly what are those customers’ specifications and needs are have never been priorities of most of the failed or failing rare earth juniors. The Tantalus model is the correct one, and I think that the survivors know that.

    Marketing technology metals is expensive and time consuming and it is best left to specialists. Thyssen-Krupp is just one of those specialists. There are others, but they need to be cultivated.
    There are also some new players in the technology metals marketing space. One of them is Geodex.
    I personally think that there is more than enough demand for the critical rare earths to absorb the total targeted output of RER, Ucore, and TRER, but again I cannot overemphasize that their products do not sell themselves.

    Jack

    May 13, 2015 - 10:40 PM

  • Bearcat

    Jeff: To me, just an ree investor/gambler, it would seem that the Tantalus deal relative to Germany, I assume Europe’s largest user of rare earths, might have negative consequences for Tasman given its European geography.

    May 13, 2015 - 11:46 PM

  • bearcat

    Jack: Appreciate your response and understand your emotion. It fits in with my general sense that it primarily is mere momentum and 11 aircraft carrier battle groups that keeps the US on top in terms of global economics. Innovation has played a role but a declining one–just look at patent applications in recent years China relative to US. Personally, I think the totally incompetent Congress and a short-sighted and not-up-to-speed Wall Street in this era of increasing globalization spell even more trouble ahead for the US. I have seen so many examples of China cleaning the clock of Westerners in the arena of international trade and commerce. It is like men determined to win at any cost competing against naïve young boys. Sadly, ree fits right into this sad reality.

    May 14, 2015 - 12:01 AM

  • Sergey

    Dear Jack,

    Thanks so much for your updates and replies, without your hard work it would be very difficult to get an honest view on the state of the REE market. One thing that may be worthy of note is that German miner’s can possibly access KfW financing if they have an off-take with a German partner, have invested enough in the project and have a full licence. Access to relatively cheap debt financing is a rarity in the REE world and the most recent Tantalus presentation claims they need sub $100m to reach 10,000k tonnes so this may be a hidden positive if true.

    Best,

    Sergey

    May 14, 2015 - 6:22 AM

  • hackenzac

    China which seems to be interested and focused on row monzanite sands is all over Madagascar for ALL of their natural resources so in terms of business and bureaucracy, they have plenty of experience in that country already. As for German interests, I wouldn’t be surprised if they have their sights on North America as well Norra Karr when that comes around. Thyssen Krupp is developing magnetic propulsion and braking systems that will need plenty of rare earths. Rants about “do nothing” America don’t ring entirely true since it’s obvious that American rare earths industries are resurgent and advancing with plenty of friends in high places. If things seem too slow, miners can blame their own checkered history for it and not the people who properly prioritize the far more important natural resources of water air and fish. The reason why long exploited Madagascar gets the off take is partially because they’re willing to do it Chinese style. It’s impossible to do something similar in the US because the do nothing Congress did something about it. Rape and run extraction doesn’t play any more and I would blame the industry for that.

    May 14, 2015 - 11:15 AM

  • Jack Lifton

    Hackenzac,

    Your point about China in Madagascar is well taken, but keep in mind that it is Tantalus’ German engineers supervising Malagasy workers and managers who will extract the REEs from the deposits and then ship them to China for separation. Note that Tantalus is paying millions of dollars to relocate a village BEFORE starting operations and that Malagasy environmental regulations were developed to avoid the rape and run mining model.
    The Chinese domestic rare earth supply chain needs mid- and heavy- rare earths. It is logical that the Chinese look to get them from the nations friendliest to them, isn’t it. Of course politics plays a part, but in general capitalism with Chinese characteristics is serving China’s industrial development quite well. As for America I believe that Wall Street driven politics is not at all good for the country’s future. The “me” generation has succeeded in power the “Ask what you can do for your country” generation. This situation is just a trivial example of the power of narcissism and greed. Live with it.

    May 14, 2015 - 12:00 PM

  • hackenzac

    As for America, grave political/financial/investment thought problems or not, I predict will have a thriving whole chain magnetics industry with an enormous alternative energy build out. I think that you do also and if lucky enough for both of us, still in our life times. Market forces can be slow and grotesque are probably more the culprit than mostly well intentioned government inertia. Can you explain the market cap of for example a junior miner like trer? It seems crazy low to me. Full disclosure. I don’t hold any trer but billions of dollars of metal just waiting to be leached and the whole thing is worth less than a Brooklyn penthouse. Adam Smith’s invisible hand my foot.

    May 14, 2015 - 2:11 PM

  • alvarita

    My money’s on the Chinese. Aside from a few wind bag politicians still playing the old “I’ll create good-paying jobs” card, no one cares about REE companies. They’re small peanuts in the overall scheme of things. Not to mention there’s no shortage of material despite the cry wolf pundits out there.

    May 14, 2015 - 2:46 PM

  • bearcat

    Hackenzac: How about Great Western and its Steen deposit, with the world’s highest grade CREO/HREE ore just sitting there waiting to be mined, with a market cap 1/7th that of TRER. GWG’s current financial reality doesn’t change in situ value of that ree-rich ore. And that GW market cap even includes an operational ree alloy factory! It isn’t about hands and feet–not simple.

    May 14, 2015 - 2:52 PM

  • Brian

    What is the CapEx and timeline for GWG? Tantalus requires sub $100m to go to full production and can raise this from off take partners and the German govt in order to go in to production in twelve months. In production the project should generate annual profits of $250m at current prices.

    May 15, 2015 - 2:57 PM

  • Investor

    Jack, I read what you wrote and then read it again and then waited few days before I wrote anything. I had to calm myself! What makes good project is not just one ingredient, Tantalus kicked all goals in marketing, but that is pretty much all they have going for them. The last time I looked at it this ionic adsorption clay deposit has La and Ce 60% of their distribution. The total grade is 900 ppm TREO and one of the heavies such as Dy is 17ppm. Based on their 43-101 the only economical form to mine this deposit is in-situ leaching!!!! The same method used by Chinese illegal miners. What about the environmental impact in Madagascar. I was under impression that Germans are environmentally responsible. Heap leach is not economical for such a low grade. But then again we are talking about another light rare earth deposit. Jack, I tried to be as polite as possible. If I wrote this few days ago could have sounded a lot different.

    May 17, 2015 - 7:51 PM

  • Willhelm

    Investor,

    As per the current presentation this project will use ‘In Situ Leaching’ but to Western environmental standards. Illegal mining in China uses a mixture of both but there are numerous environmentally safe projects in China that use leaching as the means of extraction. The big ‘6’ in China will all use In Situ leaching to some degree but non are illegel operations.

    Aside from the low OpEx the other advantage of In Situ Leaching is that Cerium is NOT extracted which hugely improves the average basket price and therefore the project’s EBITDA.

    The bulk of the c$25m invested in getting the project to where it is now – at the brink of production – has focused on ensuring that the environment is protected at all times.

    Finally, I am not sure where you get your numbers on the basket price and profitability but again the company’s current presentation forecasts c$150m of EBITA per year and I think that this is probably conservative (http://www.tre-ag.com/~/media/Files/T/Tantalus-Rare-Earths/investor-presentation-february-2015.pdf). About 80% of the bnasket value is derived from the 4 so called ‘Magnet Metals’ where the supply-demand dynamic is favorable and another global producers is needed (see JP Morgan report from 2013 for details on this). A focus on Light v Heavy is a little outdated in my opinion.

    I would think that these facts would support the facts that Shenghe and Thyssen Krup are now invested in this project.

    Regards,

    Willhelm

    May 18, 2015 - 11:06 AM

  • Willhelm

    Also, I forgot to mention that Tantalus has successfully raised $10m from new investors. A rarity to raise that sum in the REE world I think you’d agree.

    May 18, 2015 - 11:20 AM

  • Investor

    Willhelm,
    your comments are much appreciated. I look forward seeing your environmental impact study on in-situ leaching. With the TREO grade 500ppm minus Cerium a lot of land (soil) will need to be in-situ leached to get 10,000 tpa of TREO. Also can you please tell us which Chinese projects use in-situ leaching in environmentally responsible manner. The name of one or two as a reference point would do. I also look forward seeing this project progress beyond bench testwork with proper pilot plant completed and subsequent feasibility study using pilot plant data to estimate OPEX and CAPEX. You can not talk about the profitability of the project to those who have been in a mining game long time based on the bench testwork and desktop study economical evaluation used for resource estimate. However I do have to congratulate you on excellent marketing of this project especially in securing off-takes with reputable partners at this early stage of the project.

    May 18, 2015 - 8:34 PM

  • Willhelm

    Thank you Investor.

    The JP Morgan report from 2013 which is the best independent piece of research I have read on the REE sector has an extensive list of Chinese projects and how they operate. It is worth trying to get hold of it if you can.

    May 19, 2015 - 7:02 AM

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  • Investor

    Willhelm,
    It is you who stated that there are many environmentally responsible in-situ leaching operations in China. Given the fact that this is your preferred processing route and that you have been working inn it for a while surely you could tell us the name of at least ONE!
    The onus on the emerging companies is to be environmentally responsible. Germany is viewed as a leader in this area!

    May 19, 2015 - 8:04 PM

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  • Nature lover.

    Hello. I happen to know Ampasindava, the place where Tantalus intends to mine. It is one of the last pristine coastal heavens in the world. You’ve seen Madagascar, the movie ? Well, this huge red lateritic island just isn’t that wild … except in a very few places like Ampasindava Bay. The impact of deforestation, digging ( the layer of ore lays 15 to 40 meter deep), moving the ore, its treatment, shipping … would be desastrous to flora and fauna, including marine fauna. It is really a shame to mine anything there. And honestly there is no reason to suppose that the rich deposit don’t occure somewhere else in the island. Any western company operating there stands to lose a lot from international public outcry, and possibly fines. Rhodia ( Solvay group) tip-toed out. Now they acknowledge the default of one major investor (see DGAP, 8.7.2015).

    July 23, 2015 - 9:22 AM

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