Market to watch Mark Smith dual CEO role at Largo Resources: suggests consolidation of critical materials business
At a critical stage in the ramp up of its Maracás Mine in Brazil, Largo Resources Ltd. (TSXV: LGO) announced today the appointment of Mark A. Smith as the new CEO effective April 1, 2015.
Mark Smith will carry dual CEO appointments of both Largo Resources Ltd. and NioCorp Developments Ltd. (“NioCorp”, TSXV: NB | OTCQX: NIOBF), which was the #1 performing stock on the TSX Venture Exchange for overall stock performance, rising +420% last year.
NioCorp is developing the only primary niobium deposit known to be under development in the U.S., and has the highest grade undeveloped niobium deposit in North America, located near Elk Creek, Nebraska. According to NioCorp’s NI4-101 of February 6, 2015 the Indicated Resource of 81.2 million tonnes grading 0.71% Nb2O5, containing 578.2 million kilograms of Nb2O5 and an Inferred Resource of 99.8 million tonnes grading 0.56% Nb2O5, containing 557.5 million kilograms of Nb2O5 (at a 0.3% Nb2O5 cut-off grade). Niobium is mainly used in HSLA (High Strength, Low Alloy) steel, to produce lighter, stronger steel for use in automotive, structural and pipeline industries.
Interestingly, like titanium and niobium, vanadium can produce stable carbides that increase strength at high temperatures. But vanadium is by far the most used element to improve wear resistance in tool steels, providing increased strength per weight basis. A general trend in steel use has been a move from basic carbon steels towards highly specified alloyed steels. HSLA are the largest market for Vanadium in the steel industry totalling 48% of the global demand for vanadium.
HSLA consist of carbon steel, manganese and small amounts of other alloying elements that increase weldability and greater resistance to atmospheric corrosion, abrasion and seismic events. Vanadium HSLA can be produced in many different product forms such as sheet, plate, sections and bar.
I speculate that the double appointment suggests a strategic business consolidation of critical minerals, which offers a potential synergistic leveraging of the assets and business development strategies for both companies.
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On the one hand, we reported previously that the execution team of Largo has a spectacular resume, which would serve well in the development of NioCorp’s mining assets.
On the other hand, Mark Smith has demonstrated ability at raising finances as he so aptly did during his tenure at Molycorp and his current tenure at NioCorp. Mark Smith is well recognized in the mining community, having recently served as CEO and Director of Molycorp, Inc., where he was instrumentally involved in taking that from a private company to a publicly traded producing mine. At Molycorp Mr Smith managed the work of 2,700 employees. In contrast, the combined payroll of both NioCorp and Largo is roughly 255 staffs, a number that is well within Mark Smith’s comfort zone and experience.
Mark Smith was also the President and Chief Executive Officer of Chevron Mining Inc. and managed the real estate, remediation, mining and carbon divisions of Unocal Corporation for over 22 years. During his tenure with Chevron Mining Inc., Mark Smith also served as a Director of Companhia Brasileira de Metalurgia e Mineração (CBMM), part of the Moreira Salles Group, a private company that currently produces approximately 85% of the world supply of niobium.
Mark’s past experience in Brazil and love for the country, the culture and its people should help Largo reach full Phase 1 capacity in Q3, 2015. This is an alluring project with a Net Present Value of $554 million and an after tax Internal Rate of Return of 26.3%. At full capacity the mine will produce 11,400 tonnes Vanadium pentoxide (V2O5) equivalents. An off-take agreement with Glencore covers all production for the next 6 years.
The use of vanadium in steel is projected to grow at a 6.5% Compound Annual Growth Rate (CAGR). Global apparent steel use is forecasted to increase by 3.2% in 2013 to 1.46 Billion tonnes. The construction and engineering sector is also the largest consumer of Vanadium where Vanadium strengthened steel is employed in the production and engineering of buildings, bridges, tunnels and pipelines. However, the need for lighter automotive and aircraft components should increase the Vanadium demand.
There are two traditional sources of vanadium: by-product from the steel industry which currently accounts for 70% of the world’s production and mining which accounts for the remaining 30%. The standard production costs across the industry is $4.00 per lb of V2O5 whereas the expected production costs at the Maracás Mine is forecasted at roughly $2.80 per lb at full capacity.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>