The big post on niobium
Niobium is a critical mineral whose primary use is in HSLA (high strength, low alloy) steel with major applications in renewables, infrastructure and vehicles. The addition of a small amount of niobium, increases the strength of steel whilst decreasing the weight required by almost 30%.
In addition to it's traditional applications in the steel industry, niobium-based technology breakthroughs are being experienced in the battery sector, where the adoption of niobium-based materials in batteries are reducing charge times for electric vehicles down to a mere 5 minutes.
This battery technology is in the process of being commercialised however, we expect a breakthrough to occur within the next 2 years. We consider that this breakthrough is vital for the greater adoption of electric vehicles by the mainstream market.
Market structure - producing assets, historical production and prices
Niobium is a critically rare mineral, with over 80% of global production coming from the giant Araxa mine in Brazil, first discovered in the early 1950’s.
Only two other niobium mines are in production both from lower quality ore bodies in Brazil and Canada. Catalao (Brazil) and Niobec (Canada) was discovered in the late 1960’s and early 1970’s respectively, with commercialisation a short time later.
A plethora of smaller deposits exist however, are non-commercial due to unfavorable metallurgy, low grade and challenges in jurisdiction. This concentration of supply has restricted the adoption of niobium over time by end users; limiting adoption to a small range of specific high-value uses.
CBMM, as the largest producer are in an interesting market position. Despite Araxa possessing a multi-century mine life, we note that Catalao and Niobec were commercialised sequentially well after Araxa commenced production, despite lower grade and more challenging ore bodies.
The present oligopolistic structure of the niobium market appears to have been encouraged by CBMM, with no market impediments presented to niobium deposits of sufficient economic potential. We believe this represents the fact that diversified sources of supply are necessary to safeguard niobium’s continued use and adoption as a future metal into the future; with CBMM as the largest beneficiary. This view is confirmed by literary sources, namely these excerpts from the outstanding corporate history “Never Rest on Your Ores” by Norman Keevil of Teck Resources.
Indeed, we have observed historically that CBMM have strategically reduced supply and market share in periods of low niobium demand; allowing the two smaller producers to retain sales volumes rather than reduce prices for the commodity.
Furthermore, the Brazilian government authorities hold a significant economic interest in Araxa and are incentivised to maintain higher prices by virtue of a 25% net profit interest in the asset. The Araxa mine is located a mere 2 kms from the city of Araxa, known as a wellness centre and surrounded by pleasant farmland. Accordingly, we believe that expansion options are Araxa may be limited despite the size and quality of the orebody.
Whilst the niobium market continues to grow, there are individual constraints to increasing production from the existing three producing mines.
Use cases - present & emerging
Around 90% of niobium’s present consumption is in the steel industry, as ferroniobium, for a range of applications including structural, automotive, oil & gas and industrial. It is estimated that niobium is included in circa 7% of steel products, skewed towards higher-value applications due to its scarcity and limited supply.
We consider that there is significant scope to grow niobium use within the steel industry to at least double it’s present penetration rate. Continuing escalation of the ESG standards informing steel specifications are supportive of greater inclusion of alloying and micro-alloying elements within standard steel specifications; even within Chinese markets which are commonly perceived to be less ESG-friendly.
Specifically, dematerialisation will be a key driver of a reduction in Scope 3 emissions going forward under ESG frameworks such as the GHG Protocol, given the significant asset and operational improvements experienced with the adoption of advanced steel alloys such as HSLA steels. In our opinion, the greater adoption of conventional, proven material science processes such a micro-alloys represents the lowest hanging fruit to engender a rapid reduction in Scope 3 emissions over the experimental technologies and unproven processes.
Niobium, as niobium oxide, is finding important uses in novel lithium-ion battery technology, primarily in anodes and cathodes. These technologies have been under development for over 10 years and are approaching commercial maturity. The adoption of niobium battery technology has a range of benefits that we believe will be integral to the greater market penetration of electric vehicles: ultra-fast charging, increased stability and safety, longer battery lifetimes to name the most important aspects. We expect greater adoption of these technologies over the next 3 years may significantly increase demand for niobium oxides going forward.
Advanced formulations such as C103 alloy powder (Niobium Hafnium) are becoming increasingly important in aerospace and defence applications. This is another vertical in which we anticipate material growth over the next 5 years.
Strategic Value in critical metals
Critical metals are those deemed to be essential to modern technologies, economies and national security that are vulnerable to supply chain disruption. The importance of resilient niobium supply chains is further reinforced by its listing on national critical metals priority lists by the USA, EU, India, Japan, South Korea and the UK. Given Brazilian production represents over 90% of niobium market supply, an ex-Brazilian source of supply would be highly strategic and sought after by end users.
As we have seen in the case of the lithium industry, niche commodities can grow to become the mainstay of mass market products over time. The availability of raw materials is a dependency which once solved, facilitates the enablement of potential mass market adoption via inclusion within industrial design.
For instance, lithium markets were once very small with global consumption in 2000 of ~60kt lithium carbonate equivalent (LCE). This grew gradually over time to ~130kt LCE in 2010 with its primary use in ceramic and glass industries. It wasn’t until 2014 that the battery industry became the largest consumer of lithium by sector, with aggregate demand in 2024 estimated to be ~720kt LCE; a rise in demand of 5.5x in less than 15 years. In retrospect, few if any, fathomed the quantum of the increase in upstream lithium demand. In fact expert projections from 2010, released by some of the world’s eminent mineral consultancies, were a mere 20% of the demand that actually eventuated in 2020. This highlights the difficulty in making long-term projections, even by those who ostensibly have the best market knowledge.
It is our view that demand in niche commodities over time is driven primarily by any one of three separate factors:
Plentiful and relatively cheap supply - where manufacturers can fulfill customer demand and earn a margin via the conversion of inputs into value-add products.
Incentives that are attractive to end consumers - where incentives and penalties enacted by government authorities, make product adoption more necessary for customers.
Utility over existing materials - where advances in material science and manufacturing, provide new materials with an increase in utility over incumbent materials.
Importantly, the supply of upstream critical metals is not merely an industrial or chemical process which may be replicated or supplanted via technological progression; but it represents true physical scarcity or a moat. In cases where upstream supply enables the adoption of technologies which represent a vast improvement to the status quo, this represents a force multiplier and is of significant strategic value.
For instance, the Araxa mine’s strategic value is exemplified by two separate transactions: partial sales of 15% interests in CBMM for US$1.8 billion and US$1.95 billion to Japanese/South Korean and Chinese consortiums respectively in 2011. These transactions implied a look-through valuation of >US$20 billion for this asset, given the shared ownership between CBMM and local government entities.
New search spaces
Niobium exploration over the decades has been focused on Brazil where approximately 90% of niobium by weight has been found, as well as in Canada and East Africa. Of late, the West Arunta region of Western Australia has come to prominence due to the discovery of the world class Luni niobium deposit that has been defined by WA1 Resources (WA1.AX).
The West Arunta is a remote, frontier region in central Australia which is relatively underdeveloped and infrastructure constrained. Fortuitously, the Australian Federal Government have plans to invest in upgrading the basic infrastructure accessing this region over the next decade.
The challenging nature of this location means that only assets of truly world-class scale and value have a realistic opportunity to be commercialised. The fact that the Luni deposit has been defined in a mere 24 months by the company, is a testament to the quality of the resource and the flawless execution of the management team to date.
Importantly, Luni’s definition and rapid progression towards commercialisation represents a true first mover advantage for the region. The discovery of Luni has led to a plethora of ‘nearology’ exploration plays attempting to test various prospects in the locality. However, the niobium market structure dictates that there is limited opportunity to provide additional incremental supply, over and above what Luni may add to global supply.
Luni has a number of important, highly beneficial aspects that bode well for its eventual commercialisation.
The deposit is situated in a unique geological structural setting with a very unique weathering profile; significantly lowering the odds of a further comparable discovery in the region.
Unusually for a high grade niobium deposit, it has a very low proportion of radionuclides (ie. uranium and thorium) within its mineral assemblage, whilst potentially benefitting from economic by-products.
The deposit has achieved commercial metallurgical recoveries in its initial metallurgical test work. This is an extremely important aspect, as niobium is notoriously difficult to liberate and recover. Metallurgy is generally highly variable within mineralised provinces, and we expect the West Arunta to be no different. In addition, metallurgy may be highly variable within an individual mineralised carbonatite, making adequate size and geo-domaining non-negotiable aspects of any thought of commercialisation.
We go into further detail into WA1 Resources and its path to commercialisation below.
Disclosure: I manage funds that are large shareholders of the stock discussed and accordingly may be subject to bias.