the next leg up, page-27

tantalum booming, smh article !! :)) http://www.smh.com.au/articles/2004/06/23/1087845008399.html?oneclick=true

Sons of Gwalia to prosper from tantalum rebound
June 24, 2004


World demand for tantalum - used in everything from mobile phones to Playstations - has recently rebounded to the heady heights of the dotcom boom.

The surging demand has pushed tantalum ore prices to $US40-$US50 per pound from a low of $US15 in 2002.

Deutsche Bank said this was particularly welcome news for Sons of Gwalia, which supplies about half of global demand for tantalum.

When tantalum demand peaked at the height of the high-tech bubble in 2000, Sons of Gwalia shares seemed a certainty to break through $10.

But the bubble burst, Gwalia's gold operations ran into problems, and the stock stopped short at $9.71 before crashing back to $1.36 in March 2003.

Now, Cabot Corp of the US - one of the two biggest processors in the tantalum industry - says demand for the specialty metal has improved and is already within 5 per cent of 2000 peak levels, or 85 per cent above the 2002 lows.

Microchip production targets from the semiconductor industry imply an incremental increase in demand of 20 to 25 per cent by 2007, on top of the 6-8 per cent annual demand growth expected from traditional top end markets, Cabot said.

It said long-term tantalum prices were headed towards $US50-$US60 per pound, the estimated level at which opening a new tantalum mine becomes attractive.

This presents the opportunity for Gwalia to at long last capitalise on the capacity expansion it installed several years ago, according to Deutsche Bank.

"With Sons of Gwalia supplying half of global demand and able to increase production quickly and at low cost, it is in an ideal position to capitalise on any increase in demand," it said.

Part of the problem for Gwalia is that the expansion of its tantalum division happened just as the market collapsed.

Gwalia has previously indicated that increased production would lead to economies of scale and lower cash operating costs, Deutsche Bank said.

"Assuming this is correct, then Sons of Gwalia has every incentive to increase production and keep the spot price down," it said.

"There is obviously no incentive to allow new producers into the market.

"This suggests that the spot price would be kept at $US60 per pound or just below if possible."

Sons of Gwalia closed up 11c at $2.59 yesterday.