Antimony market growth driven by auto demand, rare earths a longer investment thesis
Jeff Wright outlines the structure of the antimony market, a metal with an interesting past and a bright future and offers advice on the volatile rare earth element sector. Critical Metals Report interview.
Posted: Wednesday , 19 Oct 2011
The Critical Metals Report: Jeff, in addition to rare earth elements (REEs), you are interested in antimony, a little-understood element whose symbol is Sb and whose atomic number is 51. Why does antimony interest you?
Jeff Wright: Antimony is one of the minor metals, not technically a REE. It is used for a number of industrial applications. It once was used in cathode ray tubes for televisions. It's still used in lead acid batteries and to harden the lead in the points of bullets. But its dominant use now is in fire retardants, which is a growth area. Fire retardants aren't just used in firefighter's suits and insulation these days. Right now, antimony's more interesting industrial uses involve lighter manufacturing.
Picture an automobile: Composite plastics are used throughout to eliminate metal. However metal has a higher flashpoint than your average composite plastic, meaning it's more fire resistant. So, how do you enhance your polyvinyl chloride (PVC) or PT plastics to be more fire resistant? You inject antimony into the mixture to get a more fire-retardant plastic, suitable for mass industrial use.
TCMR: That application seems to have far-reaching implications, particularly as we see automobile manufacturing expanding in developing nations. Is this a growth area for antimony?
JW: Exactly, especially in the BRIC thesis of an emerging middle class in Brazil, Russia, India and China. Not everybody will have a car, but more automobiles will be increasingly in use. You will also have more lead acid batteries, which use antimony.
TCMR: And in North America, the push is to create vehicles that are lighter, faster and more fuel-efficient.
JW: Precisely, and that will require antimony. In addition to growing demand, you have to look at the antimony supply. Approximately 80%-85% is produced in China. The situation is very similar to REEs, where you have dwindling supply with a less-than-transparent view of the available supply. Antimony's price has accelerated from about US$3/lb. to a peak of about US$8/lb., and over the last few months has retreated slightly to between US$6 and US$7/lb.
TCMR: What is the supply situation, globally and domestically?
JW: While small, the antimony supply in North America is fairly stable. If anything, it's growing incrementally based on the recommencement of operations in Mexico. A Chinese-owned Beaver Brook mine in Canada returned to production in 2008. There is no current production of pure antimony in the U.S.
On a global scale, antimony deposits in Mexico, Bolivia and South Africa were taken offline due to a number of reasons: lack of infrastructure, low antimony prices and resource nationalization in Bolivia. This created a lack of supply in the market, making it possible for China to dominate over the past five-plus years.
TCMR: Is antimony traded on an international exchange?
JW: There is no public medium where you could buy antimony futures or hedge against antimony exposure, either as a producer or as an end user. It's all done on long-term contracts or purchase agreements based on the spot price.
TCMR: Let's move on to rare earths. We've seen a lot of share price destruction in the REE space lately. According to the analysts and the experts, the long-term demand picture for REEs isn't changing. Rare earths remain critical for the electronics and avionics industries that will be very important in the U.S., Canada and beyond as they expand their manufacturing and mining capabilities outside of China. And a lot of people believe that permitting and putting a mine into production in California will be a more difficult scenario than doing the same in Wyoming.
JW: That is true. Permitting in California is a significant challenge. In a lot of ways, the one differentiator for REE permitting is that it supports the green energy complex in a way that gold or silver mining do not. Without rare earths, you can't make the magnets that go into industrial wind turbines. You don't have the ready ability, although there are some substitutes, to make the magnetic motors for hybrid vehicles.
If I were an environmentalist looking to oppose a project, I would pick a gold mine over an REE mine. There are REE substitutes out there, but they're not widespread. Their use isn't going to happen overnight, and it's a little late in the game to think it's going to happen on a mass scale. They really are locked into neodymium. There is no way you can get around that one.
TCMR: And the focus in electronics manufacturing is lighter, thinner and stronger. We consumers love that.
JW: Those are the key characteristics. You need REEs to achieve the magnetic strength. You can make magnets out of other metals, but to have a compact, powerful magnet, you need neodymium and praseodymium. If you're willing to compromise on size and weight, there are substitutes, but that's a completely different product.
TCMR: Do you have any advice for people who bought five or six stocks across some of the LREE and HREE spectrums, only to see a lot of price depreciation?
JW: Investing in companies involved in rare earths is not a one- or a two-quarter investment scenario. This is a much longer investment thesis. If you believe in the fundamentals and the true imbalance of supply and demand predicated on a diminishing Chinese supply, over time additional supply will come into the REE market. In my mind, the winners will be the less capital-intensive projects in mining-friendly jurisdictions with a clearer or a shorter permitting timeline.
TCMR: Do you see consolidation in this space?
JW: The more speculative players with earlier-stage projects or projects that have higher capex or more difficult permitting are probably not viable in the long term. I don't see them going away, but I don't see them really advancing, being able to raise capital or get attention.
We're in a true differentiation phase, where you see who has a project that could become a mine vs. who has an REE deposit. We went through the phase of considerable price appreciation for any small junior company that could come up with an REE project. Now we're seeing which of those guys can actually advance their project to a feasibility stage and proceed quickly into development.
For the average investor, the downside risk is that this is not a short timeline thesis. This is a much longer, protracted process that will have numerous ups and downs. This level of volatility is not for every investor. That's the honest truth.
TCMR: Thank you so much for your time and insights.
Jeff Wright joined Global Hunter Securities with more than 15 years of capital markets experience, most recently as a managing director and head of the natural-resource practice at Shoreline Pacific LLC. Previously, he was vice president at Montgomery & Co. and was a leader on the team that launched a capital markets business in a historically mergers and acquisitions-focused investment bank. Mr. Wright was formerly a vice president at Robertson Stephens in the equity financial products group. He received his MBA from the University of Southern California and his bachelor of arts degree in political science from North Carolina State University.
Article published courtesy of The Critical Metals Report - a subsection of the Gold Report - www.theaureport.com