Tantalum: Lessons Learned, or Will History Repeat Itself? Time Will Tell

24 May, 2016, 04:00 ET from Roskill Information Services

LONDON, May 24, 2016 /PRNewswire/ --

Roskill has released its new tantalum market report with forecasts out to 2020. It is essential reading for anyone needing a comprehensive overview of this rapidly evolving industry. 

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Tantalum: Global Industry, Markets & Outlook, 12th Edition, 2016 is now available from Roskill Information Services Ltd, 54 Russell Road, London SW19 1QL UK. Click here to download the brochure and sample pages.

In 2015, an estimated 62% of global tantalum supply came from Africa, 45% of it from Central Africa, mainly from Rwanda and the DRC. That was not the case in the past and it may not be the case in future. Much depends on whether or not the industry has learned the lessons of the last 15 or so years, and on whether or not it makes the same mistakes again, given that the nature of the industry has changed in many ways.

Although there had long been both conventional and artisanal ("pick and shovel") tantalum production in Africa, it was not until the late 1990s that artisanal mining in Central Africa became a major factor, with the rise in output fuelled by rapid growth in demand for computers, mobile telephones and other consumer electronics that use components containing tantalum. Prior to that, global supply had come mostly from conventional mines in Australia, Brazil and elsewhere, and from slags generated during tin smelting. Slags were once the main source of tantalum, and are still of significance (about 11% of supply in 2015) but their importance fell after the tin crash of the mid-1980s that led to the demise of tin mining in Thailand, where tantalum-rich ores were produced. Even as recently as the mid-2000s, conventional mining still held the #1 spot, with the Wodgina and Greenbushes mines in Australia alone making up perhaps 60% of total supply.

 

Recorded imports of tantalum ores and concentrates from the DRC and Rwanda (estimated tonnes Ta2O5) 

     (Photo: http://photos.prnewswire.com/prnh/20160520/370350 )
     (Photo: http://photos.prnewswire.com/prnh/20160520/370351 )

The first real upset came in the early 2000s when rapidly growing demand for tantalum, coupled with a wholly unfounded belief that a shortage of tantalum was imminent, saw market prices spike at US$350/lb Ta2O5 (US$772,000/t), which is about six times today's price. A number of major buyers locked-in to long-term supply contracts at the prevailing price. Demand then turned down, there was no shortage and prices tumbled. Buyers were left facing huge financial write-downs and large tantalum inventories that remained in the system for years. Those inventories were made even larger by the US government selling its strategic stockpile of tantalum, albeit over a period of several years.

While that was happening, artisanal supply from Central Africa was growing, as shown in the accompanying charts. The very nature of artisanal mining means that tantalum produced in this way is far lower-cost than material produced from conventional mining. There was a snag, however. Much of the material from Central Africa was coming from the eastern DRC, smuggled out through Rwanda and other countries, and used to fund the various warring factions. The name "conflict tantalum" appeared. Given the uncertainty over where tantalum was really being mined, most processors outside China simply stopped buying ore from anywhere in the region. That, of course, does not mean that they stopped buying downstream materials, such as K-salt (potassium fluorotantalate) or tantalum metal, which were then much harder to trace back to the original mine source.

As time went on, the availability of cheap Central African material made it harder and harder for conventional miners to win the contract prices they needed to continue producing. Although individually negotiated, the contract prices were based on market prices. In late 2008 the Australian producer Talison (formerly Sons of Gwalia and now known as GAM) tried to impose a large increase in its contract prices, which were then probably uneconomic for the company. With the global economic collapse in full swing, very low market prices and a substantial inventory already in the system, it failed and stopped producing, which came as another shock.

Prices did go up again, prompting the by-then GAM to restart production in 2011. That did not last long because prices fell again, resulting in another closure. While all this was going on, the Tanco mine in Canada closed, Marropino in Mozambique failed, the much-vaunted mega-projects in Egypt and Saudi Arabia flatlined and most of the junior mining projects have struggled to raise finance.

What has been happening more recently? Of great importance have been the moves by both governmental organisations and the tantalum industry to clean up the supply chain for Central African tantalum. In the USA, the Dodd-Frank legislation requires SEC-listed companies to report on their sourcing of materials that could be from countries identified as sources of conflict minerals. Contrary to popular belief, Dodd-Frank does not prohibit the purchase of such materials. Companies do, however, have to report whether they are not buying such material, are buying such material or are simply not sure. The last two are a PR nightmare. It has forced companies to put their supply chains under the microscope, all the way back to the mine. That is not an easy task but "bagging and tagging" systems have been introduced. Industry itself has taken more control over the supply chain, in some cases introducing "closed pipe" initiatives. This has all made a difference, although work remains to be done and smuggling from the DRC via Rwanda continues, albeit it mostly for reasons of simple tax evasion. The net result is that processors in countries other than China are now more willing to purchase material from Central Africa than they were a few years ago, as the charts show. It is worth noting that most major Chinese processors have been very careful about their sourcing for some years.

There are also signs of resurgence in conventional mining. The large Mibra mine in Brazil is now essentially captive to the processor GAM and its future looks secure, at least for the next couple of years until the contract expires and has to be renegotiated. Pitinga, the other large Brazilian mine is expanding, and that expansion will likely continue for several years. In Australia, reopening of the legacy mines does not seem to be on the cards at the moment but there are several projects in the near-horizon pipeline that could increase tantalum production significantly, along with good potential for increased tantalum supply coming as a by-product of lithium production.

What does the future hold? It is perhaps a good idea to look at past events (and hope that lessons have been learned). Demand for tantalum is not going to suddenly surge; there are no major new applications coming. Overall demand will grow gently, at best.

The artisanal mining sector in Central Africa has been legitimised, not entirely but sufficiently. Increased demand could be met from those sources, quickly and now generally guilt-free. Supply from Australia offers a wholly legitimate option but it will to some extent depend upon the lithium market.

Much will hinge on whether or not the tantalum space has learned from the mistakes of the past and become more rational. Underlying tantalum prices should rise from current levels but not dramatically or erratically. A fall in market prices would render the conventional mining sector uneconomic and would make even artisanal mining somewhat unattractive. Another spike in market prices would surely follow. This has happened before and only time will tell if it happens again.

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