By Chris Berry
- EMC Metals – a company we have covered since May of 2011 and still follow – has recently come back to life.
- There are several reason for this including recent newsletter coverage and the fuel cell industry being on fire in 2014.
- Most importantly though, the company has been able to execute on its strategy of focusing on its scandium property holdings and deliver impressive results in an extremely challenging market for critical metals – not to mention junior mining companies overall.
- An understanding of the disruptive potential of scandium in commerce and electricity production should be a crucial aspect of a resource portfolio.
The More Things Change……
When we first wrote on EMC in May of 2011, the “critical metals craze” was in full force with talk of natural resource dependence on strategic and critical metals filling the airwaves. Since then, the talk has died down dramatically, but one thing remains as clear to me today as it was back then – some metals are more “critical” than others.
Scandium fits this description perhaps better than just about any other metal. With an estimated yearly global supply of Scandia (Sc2O3) of 15 (yes, that’s fifteen) tonnes per year originating from stockpiles and tailings in places like Russia set against the backdrop of increasing demand in the aerospace and fuel cell industries, scandium can safely be considered a truly strategic raw material. Additionally, secure supply of the metal is the real catalyst for the solid oxide fuel cell (SOFC) business becoming a commercial reality as well as making transportation (airplanes, etc) more efficient and cost effective.
A brief, but helpful, primer on SOFCs can be viewed on Bloom Energy’s website here.
Some industry experts have pegged the fuel cell business at a ~30% CAGR to 2018 which would equate to a $2.5B industry. This is the supernormal type of growth profile that resource investors should be looking for. It is important to note that there are several types of fuel cells, though SOFCs offer some distinct advantages which are what has made scandium appealing all along. Below is a helpful chart showing the differences between each type of fuel cell.
Darlings of 2014
Thus far in 2014, fuel cell companies roared higher and have sold off of late in a profit taking episode. An awareness of the disruptive potential for fuel cells in commerce (think forklifts) and in energy (think about off-grid electricity generation) are the likely culprits for the sharp move higher. I think it’s safe to assume that this is one of the reasons for EMC’s resurgence as well, though the link is tenuous.
Plug Power (PLUG:NASDAQ)
Ballard Power (BLDP:NASDAQ)
Fuel Cell Energy (FCEL:NASDAQ)
Next Steps for EMC
Given that the junior resource markets overall continue to struggle, the recent breakout in EMC’s share price is impressive and I’m hopeful that the stock has found a new base. The price appreciation has been accompanied by solid volume which is another good sign. Company management has done a commendable job of maintaining and developing its primary asset, Nyngan in NSW Australia.
The company started off the year on a positive note by settling a dispute with the previous joint venture partner and now controls 100% of the property. This is highly significant and was missed by the market in that the company now controls what could be a truly world class property of a critical metal whose demand profile is extremely promising – subject to availability of secure supply.
And this is the key for EMC. The company must now raise adequate capital to settle the terms of the agreement whereby they took control of Nyngan. The deal specifically called for a payment of AUD 2.6M no later than June 30, 2014. A payment of AUD 1.6M is still outstanding. Other details, including a 10 year royalty agreement, are important but not immediate concerns. Additionally, there exists a promissory note outstanding in the amount of $1.2M bearing interest at 10% per year which is also due in June 2014. The Nyngan asset serves as collateral for this debenture.
Looking out further, the company will commission a PFS which should allow market participants including potential off-take partners to begin to get a sense of the economics of Nyngai. Work of this type has been completed in the past, but given EMC’s focus on new processing technology (high pressure acid leach), the economics will most certainly change – and for the better. This will occur along side EIS work which is currently under way. A 2017 production date is the current target. Starting with a smaller project and scaling into a larger operation would appear to be the optimal strategy given the broader market’s relative cluelessness about scandium’s criticality and the fact that this is a tiny market today which is forecast to grow substantially. First mover advantage is crucial.
I still believe in the scandium story and despite the difficulties that EMC has endured, still think that this is the best way to participate in scandium exploration and development. In keeping with our theme of disruption as lifestyles converge, knowledge of a metal like scandium and its ability to allow humanity to do “more with less” will be an absolutely crucial part of our investment strategy.
Ed Note: This Thursday, I’ll be presenting at the Murdock Capital Critical Metals Symposium where I’ll discuss the current state of the critical metals markets and why scandium is one of my top picks. I speak at 12:20 pm EST, but you can view some or all of the entire day here: http://murdockcapital.com/wordpress2/live-webcast-may-15-from-a-z/
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