Spotlight on Romios Gold’s well positioned gold, copper and silver projects

Gold and other precious metal explorers in North America can see huge stock price pops just on a single drill result, provided it is a great one. We saw that with Kodiak Copper in September 2020 when the stock popped over 700% in the month following a great copper-gold porphyry drill result. For investors selecting the right junior precious metal explorer is not easy, but the rewards for success can be huge. One junior explorer that has more precious metal projects than most miners, all in North America, is Romios Gold Resources Inc. (TSXV: RG) (‘Romios’).

Currently awaiting several drill results from their 2020 campaign, including from their Trek Project (potential porphyry copper-gold deposit), Romios has 25 years of experience assembling a huge fully-owned North American portfolio of precious metal (gold, silver, copper, cobalt, molybdenum) projects. Their strategy is to acquire land next to major gold projects then economically explore them for precious metals. In some cases, this is done via earn-in partners and in other cases directly by Romios.

Below is a quick overview of Romios’ projects:

Golden Triangle, British Colombia projects (flagship region)

Ontario projects

Quebec project

Nevada Project

  • Scossa Gold Project (includes a historical drill result of 3.35 m @ 180.22 g/t Au, 4.02 g/t Ag). This property has a history of gold mining with very high-grade bonanza gold.

Romios Gold’s numerous projects in major mining districts in North America

Source: Romios Gold company presentation

Note: Romios also recently acquired land at the Thunder Bay Camp in Ontario with four historic silver prospects.

With so many early-stage exploration projects it can be hard for companies to progress them rapidly. Romios is currently boosting awareness of their Company to boost capital and therefore accelerate exploration across so many promising targets.

At Newmont Lake, they have optioned out the exploration in return for a 2% NSR royalty, 12 million common shares of Enduro Metals Corporation (previously Crystal Lake Mining), and cash payments. In return, Enduro must complete an $8 million, three-year exploration plan.

Looking ahead to 2021 

Romios is still awaiting drill assay results from some of their 2020 exploration work and based on results intends to actively explore their best prospects further in 2021.

Specifically the 2020 drill results from the promising Trek Project porphyry copper-gold targets (includes Trek South) and the Andrei target at Newmont Lake. The Trek Project has an approximate 5.0 km strike-length of mineralization along deep basement structures. Work in previous years included 35 drill holes that returned assays up to 131 metres @ 0.6% Cu, 0.39 g/t Au and 8.5 g/t Ag. The Trek Project is located 10 km SE of the enormous (>1.1 billion tonne) Galore Creek porphyry Cu-Au deposits which are owned by the Teck-Newmont JV.

Romios is also awaiting 2020 drill results from their Lundmark-Akow Lake Project in Ontario Canada. These are intended to follow up on Romios’ exciting 2019 discovery of 8.6 g/t gold over 4.75 metres.

Romios Gold’s Trek Project in the Golden Triangle of British Colombia, Canada

Source: Romios Gold company presentation

Closing remarks

They say timing is everything in mining investing and that certainly can be true with junior precious metal explorers. Romios Gold Resources currently trades on a very low market cap of C$12M. And with such a large exploration package of properties, and gold at US$1,845/oz and copper at US$3.78/lb, we look forward to their drill results.

Disclosure: The author is long Romios Gold Resources Inc. (TSXV: RG)




Following the Romios Gold Resources gold-copper porphyry exploration potential in the Golden Triangle of BC

“The name Romios reminds me of the Roman Empire, so it will be interesting to see if Romios Gold can build their own golden empire in the Golden Triangle of BC or at one of their other North American precious metals projects. One to follow closely.”

Romios Gold Resources Inc. (TSXV: RG) (‘Romios’) has precious metal (gold, silver, copper, cobalt, molybdenum) projects spread across their numerous large tenements in North America. Their flagship and focus area is the ‘Golden Triangle’ in British Colombia (BC) where Romios holds an interest in 78,535 hectares. Three of Romios’ projects, Trek, Newmont Lake and JW, have gold-copper porphyry style mineralization, thereby holding significant exploration potential.

Romios’ strategy has been to acquire land next to major gold projects, especially in the Golden Triangle. Since late 2004, Romios has systematically acquired an extensive land position between NovaGold/Teck Resources’ and Barrick Gold’s properties.

The ‘Golden Triangle’ of British Columbia includes the world-class Eskay Creek, Galore Creek, and Brucejack deposits. The Golden triangle is known to have 152 million ounces of gold and growing.

Romios Gold Resources claims location in the gold rich ‘Golden Triangle’ of British Columbia, Canada

Romios Gold resources claims location in the gold rich 'Golden Triangle' of British Columbia, Canada

Source

Newmont Lake Project (currently optioned out to Crystal Lake Mining)

To minimize stock dilution, Romios’ Newmont Lake Project is being advanced through a 100% earn-in option to Crystal Lake Mining (TSXV: CLM) that includes an $8 million, three year exploration plan. If the agreement completes Romios will retain a 2% NSR, 12 million common shares of CLM, and cash payments. The Newmont Lake Project is well located in the Golden Triangle, BC. The Project has an existing NI 43-101 Inferred Resource for the Northwest Zone of 1.406 million tones, containing 200,000 oz Au, 6,790,000 lbs Cu, and 291,000 oz Ag. Romios is also developing a NI 43-101 resource for the high-grade surface mineralization at the ’72 Zone & Telena Zones (new discoveries in 2011), and the Ken Zone. Next will be a district-scale Preliminary Economic Assessment. The Project is located within 15 km of AltaGas’ McLymont River hydropower project.

Trek Project

Romios is developing a NI 43-101 resource at the North Zone of the Trek Project, within the Golden Triangle, BC. The Project is located near NovaGold-Teck Resources’ Galore Creek Project and proposed mill site. The Project has an approximate 5.0 km strike-length of mineralization along deep basement structures. Work in previous years included 35 drill holes that returned assays up to 131 metres @ 0.6% Cu, 0.39 g/t Au and 8.5 g/t Ag. Romios recently reported copper-gold discoveries of up to 1.4% Cu, 3.6 g/t Au and 48 g/t Ag.

Romios Gold Resources land showing the Trek Project and the Newmont Lake Project

Source

Romios’s full range of projects include:

Romios Gold Resources projects in North America – Gold, silver, copper, cobalt and molybdenum

Source

Romios Gold Resources Inc. has a lot going on and in several locations. Certainly the stock looks to be trading under investor’s radar with a market cap of only C$10m. The name Romios reminds me of the Roman Empire, so it will be interesting to see if Romios Gold can build their own golden empire in the Golden Triangle of BC or at one of their other North American precious metals projects. One to follow closely.




Supply chain disruptions, equity market falls, the COVID-19 survivors are rhodium, palladium and gold…

COVID-19….China and global supply chain disruptions……China then US equity market falls……welcome to 2020!

If you thought 2019 was volatile with the US-China trade war, 2020 is looking even worse. The US S&P 500 just dropped 10% so far this week, with the biggest one day points fall in history on Thursday.

Supply chain and metal markets disruptions stem from China

The coronavirus has massively disrupted much of China’s industrial heartland in Hubei and nearby regions. The lock down and closing of factories caused a 92% fall in China auto sales in the first half of February. Naturally, all of this has had a significant impact on the metals markets as well as global supply chains.

Added to the car makers woes are manufactures of most types of goods, including consumer electronics. Apple has warned of global iPhone supply shortages, and analysts have estimated that the virus may slash demand for smartphones in China by half in Q1 2020.

Critical materials expert Jack Lifton commented to InvestorIntel:

“In China the main concern is the impact of the coronavirus on the Chinese government’s control of the Chinese economy. In the USA the main concern is how the political parties can benefit most from hyping the coronavirus story. Politics is trumping economics, health, and safety in both countries.”

Commodities are generally down with a few exceptions

Given the extreme February China slowdown and supply disruptions, most commodities have been sold off. The CRB Index is down 6.02% for the past month. The oil market has been particularly hard hit due to the Chinese lock down. Oil prices are down ~14.63% over the past month and iron ore is down 8.81%. Copper and nickel have so far been resilient, perhaps due to the fact they had already been beaten down from the trade war.

Of interest, the only commodities doing well the past month are rhodium (+29.69%), palladium (+23.07%), molybdenum (+6.61%), and gold (+3.36%). Rhodium and palladium are the key emissions metals whose demand has surged in 2020 due to tighter emissions standards in Europe and China, as we wrote about last year here.

A comparison of commodity returns over the past 1 month since the coronavirus worsened

Source

Looking out to Q2, 2020 as Chinese factories are re-opening now and ramping back up, the demand for commodities is expected to resume. Of course, this will depend on the global coronavirus situation. If it worsens in the coming months and western markets also contract then we can expect H1 2020 to be a write off.

What To Watch Out For Next

The US equity market fall has been heavily correlated to the escalation of new coronavirus cases outside of China, as shown by the chart below.

As new cases outside China escalated from February 21, the US equity market started to fall heavily

Source: Worldometers.info/coronavirus

This means if the new coronavirus cases outside of China (especially in the USA) continue to escalate we can expect further downside (~10%) for US equity markets, depending also on the duration and extent of the disruption.

Gaining some equity market long term perspective

Whilst the past week’s ~10% fall of US markets is concerning and indeed a sharp fall, investors can gain some long term perspective from the chart below of the S&P 500. Here are some thoughts to consider:

  • US equity markets were about 20% overvalued before this week’s 10% fall.
  • Based on the long term trend line below, US equity markets could fall another 10% to reach approximate fair value. Current Price Earnings (PE) ratios would also support some further fall, even when taking into account low US interest rates.

Using the rule of 20 (which adjusts for interest rates) we could expect the US historical PE ratio to be at 18.25 (20 – 1.75). The current US historical PE is 20.9 as of February 26. After yesterday’s ~4% market fall the February 27 PE will update to ~20.1, and is therefore 10% above the 18.25 fair value figure.

The above valuation guidelines would suggest the US S&P 500 has a further 10% to fall to be back at fair value. Given it has already fallen 10% from its high an additional 10% would bring the total fall to 20%, should it occur, and we would officially be on the brink of a bear market.

Beyond that, it will depend on the severity of the coronavirus globally, and the economic disruption that may follow.

US S&P 500 1994 to Feb. 27 2020

Closing remarks

The massive China lock down in February has caused a huge disruption to global supply chains, especially given China remains the world’s biggest factory. Effectively much of Chinese production of goods was lost in February, but looks to be heading back on track in March assuming the coronavirus does not worsen in China.

The oil market has taken a short term hit, while base metals have been resilient in February. Assuming we get a ‘V” shaped economic recovery in China then March should see some signs of recovery in both the commodity and Chinese equity markets. Looking further out a full recovery will likely take several more months, and will depend on how badly the coronavirus spreads globally.




NioCorp’s niobium, scandium, and titanium make the U.S. critical minerals list

NioCorp Developments Ltd. (TSX: NB | OTCQX: NIOBF) owns the Elk Creek niobium-scandium-titanium project in Southeast Nebraska, USA. NioCorp is focused on the three superalloy materials niobium, scandium, and titanium. All three of which were last week included in the “critical minerals” list of just 35 critical minerals, by the US Government.

Niobium is mostly used for steel alloys as it makes steel lighter and stronger. Niobium is used in bridges and other large infrastructure projects, in high pressure oil and gas pipelines, in virtually all steel‐chassis vehicles, and in many other applications. NioCorp states – “$9 of Niobium added to a mid-sized automobile reduces its weight by 100kg, increasing fuel efficiency by 5%.”

Scandium is also used for light weighting. It is used in aluminum-scandium alloys for aerospace industry components and for sports equipment such as bicycle frames, fishing rods, golf iron shafts and baseball bats. NioCorp states – “Scandium expert says airline industry stands to reap hundreds of millions of dollars in annual savings by integrating scandium alloys into commercial jetliners.”

Titanium is as strong as steel but much less dense. It is therefore important as an alloying agent with many metals including aluminum, molybdenum and iron. These alloys are mainly used in aircraft, spacecraft and missiles because of their low density and ability to withstand extremes of temperature.

Niobium, Scandium and Titanium

NioCorp’s Elk Creek has the highest-grade primary niobium resource in North America, and the only such resource under development in the US. Elk Creek has Probable Reserves of 31.7 million tonnes of ore at 0.79% niobium (Nb2O5), 71.6 grams per tonne (g/t) scandium (Sc), and 2.81% TiO2. Indicated Mineral Resources are 90.9 million tonnes at 0.66% Nb2O5, 70 g/t Sc, and 2.59% TiO2. The Elk Creek deposit is open in three directions: to the northwest, southeast, and at depth.

Infrastructure is good with the deposit located next to a highway and rail line.

NioCorp Elk Creek Nebraska location map

The December 2017 Definitive Revised Feasibility Study resulted in a post-tax NPV 8% of $1.7 billion, with post-tax IRR of 21.7%, a 32-year mine life with a 3.4 year pre-tax payback period from onset of production. The project is expected to produce an average of 7,055 tonnes per annum (tpa) of ferroniobium, 103 tpa of scandium trioxide, and 11,445 tpa of titanium dioxide. CapEx was estimated to be US$1b. Forecast production costs (net of TiO2 byproduct credit) are $12.14/kg of niobium (on a niobium equivalent basis) and $1,127/kg of Sc2O3 (on a Sc2O3 equivalent basis).

NioCorp has 75% of their primary product ferroniobium already under contract for the first 10 years of production – 50% to ThyssenKrupp Metallurgical Products GmbH and 25% to CMC Cometals.

NioCorp is still very well valued with a market cap of just CAD $152m, compared to a NPV of $1.7b.

NioCorp’s challenges lie around funding their large CapEx. However, given their very impressive Feasibility Study result, their 75% ferroniobium off-take commitments, and their eligibility for the German Government loan guarantee program the company is well positioned to progress to the final stages.

Of key significance is the fact that the US relies on China and Russia for these three critical metals. With last week’s change to include niobium, scandium and titanium in the US critical minerals list, and with NioCorp’s 2021 timeline to production, that could soon change.




Tungsten space, it looks like happy days are here again.

New Tungsten players are as rare as hen’s teeth. The brutal price drop after the surge during the so-called Supercycle chopped off most Tungsten wannabes at the knees and left less than a handful of viable players while bankrupting some of the better-known producers. It didn’t help that the Chinese sabotaged the market with uncommercial moves.

So we were intrigued when a new kid, Happy Creek Minerals Ltd. (TSXV: HPY), appeared on the block. Its principal focus is the Fox property, which is a 100%-owned, new tungsten discovery containing indicated resources grading 0.817% WO3 and inferred resources grading 1.568% WO3. A portion of the resources are within an open pit and overall, are among the highest grade in the western world. The deposits are open to further expansion and the 10 km by 3 km mineral system hosts seven known zones at surface.

We thought it might be useful to review what they have discovered.

Tungsten

As we recently wrote, this hardening alloy metal was looking like the wallflower at the specialty metals dance. Most other things had recovered slightly during 2016 but Tungsten was stranded. The supply of the metal has been dominated by China for some while and as with other metals under Chinese domination commercial considerations has little to do with production decision-making. The stagnation was also somewhat understandable with demand largely coming from the stable machine tool market and the very depressed drill-bit activity in the oil & gas and mining spaces. The former was trending slightly up, the mining sector meanwhile was merely a twinkle in the eye for prospective recovery in 2016 and the oil & gas sector was suffering the hangover from hell from years of hyperactivity.

Source: Almonty Industries

As the chart above shows the gain thus far this year has been 20% which is respectable in anyone’s book but still pales compared to the type of moves that other basic materials like Manganese and Chromite managed during the past 18 months. Tungsten has been one of the few spaces that has seen consolidation with Almonty Industries vacuuming up a number of competing or potentially competing players. Meanwhile North American Tungsten went bankrupt (as did Malaga) and Wolf Minerals walks across hot coals in its search for profitability.

The dilemma for the end users is that new projects that are advanced are rare indeed and those on the drawing boards like Sisson and Mactung are eye-wateringly gigantic. Most other juniors have wilted on the vine during the dry period so it will need prices to continue rising and cross the $300 per MTU level (and hold there) before investors have much choice in the space. Thus it is into this rather quiet scene that Happy Creek has ventured.

Fox

The company’s target for a Tungsten development is the Fox property approximately 70 km northeast of the town of 100 Mile House in British Columbia. It consists of 31 converted legacy and new cell claims totaling 13,589 hectares. All tenures are 100% owned by Happy Creek and are subject to a 2.5% Net Smelter Royalty (NSR), with Happy Creek having the right to purchase 1% of the NSR. Happily, the property has no known environmental liabilities.

This deposit consists of a tungsten-molybdenum porphyry type system similar in age to the nearby Boss mountain molybdenum mine (situated some 30kms o the west). The southern and central portion of the property are easily accessible by paved and gravel logging roads from 100 Mile House, the largest community in the region.

The Fox property contains eight areas of tungsten mineralization. Tungsten mineralization is hosted mainly in calc-silicate rocks of the Snowshoe Formation. The consultants classified this as a Tungsten skarn deposit. They noted that known intrusion-related skarn deposits having similar characteristics which occur in the Southern BC and Yukon areas such as Emerald /Dodger, Dimac, MacTung (Yukon, Canada) and Cantung (Northwest Territories), Canada.

Resource

In March 2017, the mining consultants, AGP of Barrie, Ontario produced a NI 43-101 Resource Update for the RC Zone and Maiden Resource Estimate for the BN Zone of the Fox Tungsten Project. The table below shows a summary of the estimate.

It is important to note with the Tungsten price moving strongly higher that the resource estimate employed a Tungsten price cutoff of US$166.52/MTU of WO3 in concentrate in making the calculation. In order to assess the Mineral Resources an in-situ resource cut-off grade of 0.20% WO3 was applied for potential open pit resources and 0.55% WO3 for potential underground material. It would seem evident that the resource would expand quite significantly with a price cut-off closer to the current market price.

A Lerchs-Grossman optimized shell was generated by the consultants to constrain the potential open pit material. Parameters used to generate this shell included:

  • 50° slopes for the pit shell
  • CAD$8/t mining, CAD$26/t milling, CAD$10/t of G&A operating costs
  • 8% WO3 recovery to a 68% WO3 concentrate
  • CAD$208.15/MTU WO3 price
  • economics applied to Indicated and Inferred materials

Happy Creek’s plan is to continue expanding the resources and advance the Fox project to a Preliminary Economic Assessment and this would obviously use a more current price in the model.

Other Endeavours

In addition, at the 100% owned Rateria property that adjoins to the east and west, respectively, the southern portion of the Highland Valley Copper mine property, and adjoins to the north of the former Craigmont copper mine property, located north of Merritt, British Columbia. Happy Creek has been working on its discovery of two new copper zones that are 6.5 km from a currently producing open pit at the Highland Valley, Canada’s largest open pit copper producer (see pic below).

The map below gives an idea of where Happy Creek’s properties are vis-à-vis the Highland Valley complex.

Drill results from Zone 1 include 145m of 0.25% copper starting from 9.8m and intervals containing up to 95m of 0.67% copper occur. At Zone 2, drill results include 92.8m of 0.30% copper, 0.15 g/t gold starting at 12.19m, and 146m of 0.46% copper, 0.10 g/t gold starting at 53.0m. Both zone 1 and 2 are open to further expansion and contain predominantly bornite-chalcocite copper mineralogy. Clearly there is a need for much more work, but the focus has switched to the Tungsten property for the short- to medium-term.

Conclusion

With any luck the Tungsten rebound will go under the radar of the promotorial carpetbaggers of the mining sector and mainly be noticed by serious investors and players in the space. That way the likes of Happy Creek and the hardy band of developers who survived the last five years will have the space to themselves without the distractions of squawking wannabes.

With high grades at the Fox property Happy Creek will be the explorer to watch as the Hemmerdon experience has shown that low grades do not cut it when stacking up project economics.

In the Tungsten space, it looks like happy (or at least happier) days are here again.




Moly – Damned in Perpetuity?

Mark Anthony in Shakespeare’s words declaimed over the body of Julius Caesar:

You all did love him once, not without cause:
What cause withholds you then, to mourn for him?
O judgment! thou art fled to brutish beasts,
And men have lost their reason.

Well, may we use the same words to describe the fate of Moly. This once “hot” metal is now the mineral equivalent of a leper in our midst forced to wander along Bay Street ringing a bell, to warn travelers, and crying “Unclean, unclean”. Such is the noxious nature of Moly these days. And yet in the run-up to 2008, Moly was the metal investors could not get enough of. In some respects it was hotter than gold. And yet now, how is the mighty fallen.

leper

What Ails It?

I can recall a meeting back in 2008 or even 2008 just before the LME introduced trading in Moly and Cobalt with a company in the Moly space telling us that it would be a disaster. Logic dictated that there was no way that a clearer, more transparent market should result in the end of life as we know it. But curiously Moly has never been the same.

The chart below shows the wild ride the metal has had in the last decade. Currently its price is little changed from the post-2008 lows from which there was a meaningful rally in 2011 before it sank again.

moly_price_trend

We stumbled upon this chart in a presentation for General Moly, a company that hopes to develop its Mt Hope mine in Nevada. The projection part of the chart (by CPM Group) is interesting and points to a well-nigh 100% appreciation over the next eight years.

We have heard various reasons posited for the weakness of the metal. Prominent amongst these are:

  • strong U.S. dollar,
  • weaker macro sentiment in Asia and Europe
  • demand contraction for “at the wellhead” Moly-based steels relating to energy production

However, none of these is really convincing and we shall look at some of them here with regards to their credibility. The weakest argument is the strong US dollar argument as the oil price was very strong for the last few years also thus negating any higher cost for Moly in dollar terms, but in any case Moly has been cheap in absolute terms!

Applications

Key to understanding Moly’s attractions as a steel alloy is its anti-corrosive qualities. For this reason it is used in clean water systems, pipelines, desalinization plants and other water treatment plants. More prominently promoted though is its role in oil & gas production and infrastructure, such as:

  • Pipelines
  • LNG storage and transport
  • Off‐shore oil & gas
  • Horizontal drilling and fracking
  • Reducing SO2 emissions (moly as a catalyst)

Demand

Something has just not quite added up in the bull version of Moly in recent years (in fact since 2008). As noted the main driver of Moly is supposedly products known as Oilfield Trade Goods (OFTG) and, excepting the last nine months when oil & gas prices have slumped, drilling and infrastructure in the energy industry has been on an absolute tear since 2010 with the fracking boom. And yet…. nothing has measured up to expectations. The demand has clearly been there so the problem must be there OR other parts of the usage universe for Moly are not pulling their weight.

Production

So if demand is not bad then the problem could be on the supply side. It is worth noting that the amount of molybdenum recycled as part of new and old steel and other scrap may be as much as 30% of the apparent supply of molybdenum.

It is interesting to look at the latest USGS numbers for the metal.  The estimated US mine output of molybdenum in concentrate in 2014 increased 8% from that of 2013. U.S. imports for consumption increased by 17% from those of 2013, and U.S. exports increased by 4% from those of 2013. Reported U.S. consumption of primary molybdenum products slightly increased from that of 2013. Apparent consumption of roasted molybdenum concentrates increased by 4% from that of 2013.

As can be seen below, LME warehouse stocks are not that high.

Moly_warehouse

Another part of the problem might be the Chinese. They have been a perpetual thorn in the side of the West with on-again/off-again policies in this metal. This makes planning very difficult. In November of 2014, China cancelled export quotas (25,000 t) for molybdenum for 2015. This came after a World Trade Organization panel concluded in March that China violated the organization’s membership obligation by restricting exports of molybdenum. Unfortunately, more Moly exports from China is exactly what the hard-pressed miners in the West do NOT want to see.

Those is the Moly space that were living in hope of higher prices had been hinging this theory upon a potentially tighter Moly supply environment given that major North American sources of supply in 2014 (the Thompson Creek, Endako, Mineral Park mines) representing around 40 mn lbs of annual production will be largely out of the market in 2015.

Conclusion

Moly is a metal that has not even been able to give a glimmer of hope to its followers in recent years. Most metals have staged rallies then flopped back (while maybe making some ratchet –like move upwards from lows). Moly has provided no such solace. The result is that there are no primary Moly wannabe juniors out there. Like confessing to have leprosy, the faster way to clear a room of investors is to say that one is going to pursue a trajectory as a Moly miner. On the larger scale there are some names like General Moly caught in an eternal holding pattern, while Mercator the owner of Mineral Park went bust and Thompson Creek, the one-time champion of the Moly space, is gradually exiting stage left through putting mines on care & maintenance and others reaching the end of their LOM. Freeport has its Climax mine in cold-storage and that might be the first cab off the rank in the event of a Moly turnaround mainly because there no other potential mines even vaguely likely to get into production with either:

  • Three years of sustained better prices
  • Those better prices being $13 per lb or higher

Thus we could say that Moly is one of the most extreme examples of feast or famine. There is likely to be an extreme supply crunch but no-one is betting on that being very soon.




German Resource Alliance: The Rohstoff Allianz ‘circles the wagons’ to make investments

Several weeks back I wrote about the revival of the Frankfurt stock exchange and German equity markets in general as a playing field for mining juniors. It is strange that mining has captured the imagination of German “man-in the street” investors twice in the last decade when Germany has had so little presence in the international mining scene for so long. The only German miner that is well-known outside the country (and even then to only a rarified group of informed parties) is the potash/phosphates giant Kali und Salz GMBH (K+S).

The loss of the country’s colonial dependencies at the end of the First World War and then the loss of further mining territory to Poland at the end of the Second World War, meant that whatever metals mining happened in Germany tended to be only domestically-known and not on the large scale compared to the mega-mines of Australia, Canada or the developing world. This relative lack of guaranteed access to resources in the great colonial carve-up is sometimes cited as one of the reasons for the tensions leading to WW1 and also one of the reasons the Molotov-Ribbentrop pact was entered into.

In any case, German industry has long been dependent upon “the comfort of strangers” when it comes to raw material supplies. In a globalized world this is (or was) not much of a concern because the US had also become extraordinarily dependent upon non-domestic suppliers of virtually all metals it consumes. However like the US and Japan back in 2010, the German industrial complex had a massive wake-up call when the Chinese decided to choke off Rare Earth supplies at that time. This was not isolated with various other specialty (e.g. Antimony, Tungsten, Moly) and base metals having seen the Chinese flexing their muscles and fiddling with prices to “show the West” who was now boss. Unlike the US, where lip-service was paid to the issue but nothing actually done, the Germans circled the wagons pretty swiftly and started thinking about how life in the metals space might look if China was removed from the equation, or at least minimized.

circling

The first response was to set up working parties and launch research projects for recycling and reclaiming Lithium and Rare Earths. The bigger response though was in getting German industry to sit down and form a German Resource Alliance (Rohstoff Allianz) with a goal of strategizing and making investments.

Germany’s Mining Brains Trust

I first got an inkling that the Germans were resurgent in metals when I was at an Antimony conference and bumped into a representative of the German equivalent of the USGS or BGS, an organization called the DERA for short (or those who can’t pronounce German). I had never heard of it before but it didn’t surprise that Germany should have such a body such as this. What was surprising though was what it does. While the USGS speaks about deposits and a little bit about producers and high level export/import numbers the report that the DERA produced on Antimony was another category altogether with much better grasp of the global scene and where production was coming from and likely to come from, including clandestine production and smuggling.

Then we came across a project for a specialty metal in another EU country and they informed us that DERA was actually footing the bill for 40% of their exploration budget. When we asked why a German government entity would fund a foreign company undertaking exploration in another country the response from the explorer was that DERA “wanted to know what was there”.

The Threat to the Industrial Heartland

I have written before of the strange actions of the Chinese with regard to Tungsten. Restrictions on the export of this metal were viewed by us as being tightly linked to the Chinese desire to move up the value-added chain in industrial production and what could be more value added than machine tools, for which a cutting edge (literally) metal like Tungsten is key? The problem for the Germans is that this is one of their bread-and-butter industries and one of the reasons the German industrial heartland has staved off the ravages of China, while textile companies and shoe manufacturers across Europe and North America have succumbed to the Chinese tidal wave of cheap production. The Germans now have the feeling that the machine tool putsch by the Chinese has put a target on their back.

The Rohstoff Allianz was established in March 2012 as the response to this threat to raw material supplies. The three early priorities of the consortium are Rare Earth Elements, Coal and Tungsten (surprise!). The rollcall of members is prestigious to say the least. Beyond the five government entities involved (it is Berlin based, like DERA) the other founders were:

 BMW
 Thyssen-Krupp
 BASF
 Daimler
 Wacker (chemicals)
 Busch
 Chemetall
 Bayer
 Stahl-Holding-Saar (steel)
 Aurubis (the largest copper producer in Europe)
 Evonik (a specialty chemicals firm)
 GeorgsMarienHutte (steel)

This is a Who’s Who of the German industrial establishment. If we had wound back the clock twenty years the late great Metallgeschaft would most certainly have figured in this list. The demise of that firm removed Germany’s main player in the trading house space of the metals industry. At best there are now only very small German players in metals trading.

The Alliance has a brief to invest in mining companies from the early exploration phase through to the mining phase. It surprises me that the Vancouver promoters are not beating a path to the Alliance’s door. Then again the members of the Alliance are not looking for over-drilled moose pasture here but want to see companies that are serious about production (in which case most of the Vancouver crowd can save the cost of the flight to Berlin).

The concept sounds great. It will be interesting to see what projects reach fruition through this nurturing process.

Conclusion

The current website of the Rohstoff Allianz has broadened out its fields of interest. Now it covers, base metals, specialty metals, REEs, coal and graphite. Sorry folks, no gold or silver!

It is no coincidence that the German language contains the word Gesamtkunstwerk, besides being a mouthful it nowadays (having originated as an artistic term), can be used to describe an all-embracing work of art. The Rohstoff Allianz combined with the intensified recycling efforts and DERA is indeed an all-embracing industrial Gesamtkunstwerk. Comparing the scatterbrained response in Washington to the Chinese resource domination threat, to the German response, it is night and day. The Germans (with government working alongside industry), have identified the threat and started doing something about it. In the US, the government looks to industry and industry looks to government and nothing gets done.

So while investors look in vain to Canadian or Australian mining capital markets to cure what ails them, the Rohstoff Allianz clearly is a new kid on the block, but while not having constraints by size, it is clearly not for the non-serious, which means that those dedicated to getting to production (particularly in Eurozone countries) should be given a decent hearing. Fakers need not apply…