After A Turbulent Ramp Up, Noventa Is On The Way To Becoming The Lowest Cost Tantalum Producer In The World
By Alastair Ford
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Zambezia province, up in north eastern Mozambique, is true tantalum country. The artisans and small operators who work the ground there do quite nicely, and now some bigger companies are getting in on the act too. “This year we plan to produce 300,000 to 330,000 pounds of contained tantalum”, says Clinton Wood, chief executive of Aim-traded Noventa, which after a year long share price slump still boasts a market capitalisation of nearly £50 million. That’s a decent sized business for the Mozambicans to get on the ground there, given that the country has very little history of large scale mining.
It’s got a bit of history of exploration about it, though. “All our concessions in the Mozambican pegmatite province have been extensively drilled”, says Mr Wood, “by the East Germans and Russians when Mozambique was still the ‘peoples’ republic”. That data is fully available to Noventa, and means that although it has several projects that are technically speaking early stage because no recent work has been done, in fact as soon as the company decides to move on them they will be rapidly transformed into advanced prospects. That’s the upside.
But in the near term Noventa has two properties with much more substance to them. The first is Marropino, currently on a ramp up to produce between 400,000 pounds and 490,000 pounds of tantalum per year. The second is Morrua, where a decision to start construction is only waiting on the switch on of a new local power grid and funding from house broker Investec.
It’s not all been plain sailing though. In a recent quarterly update the company admitted that missing initial production targets at Marropino had been “disappointing”, and that the squeeze was now on on working capital. That had necessitated the issuing of a zero coupon convertible bond with the somewhat optimistic strike price of 175p. That’s 75 per cent higher than the levels at which the shares are currently trading. On the other hand it’s very roughly 12.5 per cent lower than where they were trading this time last year. So it’s clear Noventa’s production re-rating has yet to kick in, primarily because it hasn’t yet hit the targets it put out into the market.
What’s more the grid power which the company was expecting to be able to tap into in order to crush the hard rock up at its second property Morrua, has yet to be installed. It’s an Indian aid project hooking up this part of Zambezia to the grid, and it’s nice that such power is likely to be available for Noventa’s use. Installation is running a year behind schedule, however, and the company would at least like to know it’s definitely going in before it starts construction at Morrua. That construction work will itself take twelve months, so there’s no need for a grid switch-on next week to make the project work. But you can understand why investors might feel twitchy.
Still, Noventa has plenty of other things going for it, not least the low cost nature of its projects. Specific costs are always a bit hard to pin down in the tantalum business, as customers are twitchy about revealing what price they’re paying for the metal, and even in many cases, including that of Noventa’s, of revealing their identity at all. But according to Noventa’s competent persons report, compiled by SRK at the back end of 2006, the cash cost per pound of tantalum produced from Marropino was likely to come in at between US$25 and US$30. Given that the current spot price – such as it is in this opaque market – is approaching US$50 per pound that provides room for some nice looking margins, even if diesel and other costs have escalated since SRK ran the rule. According to Mr Wood, Noventa will turn cash positive during the current quarter.
With a six year mine life and a nice - and not so little - sideline in selling the associated morganite gemstones through partners NASDAQ-listed Lorenzo Jewelry, there should now be enough money coming into the kitty to keep the lights on, and to strengthen Noventa’s hand in any financing deal for Morrua. The US$36 million to US$40 million projected cost to get Morrua into production isn’t a big ask for a market like London, and Investec are said to be well on the way to securing the money. That in turn bodes well for any potential deal for the off-take from Morrua. “Our outlook is that if we can raise money without going to our customers we will. I don’t want to sign away any price upside”, says Mr Wood. So with low capital costs and low operational costs, the lowest in the world so far as is known for an industrial scale producer, according to Mr Wood, Noventa looks set fair to enjoy any coming strength in tantalum. Providing, that is, the Indians switch the power on. |
