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I Would Recommend Being A Lot Less Enthusiastic About Scandium

Aug. 28, 2017 11:51 AM ET
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9 comments
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| Includes: CTEQF, MLMZF, SCYYF
by: Tim Worstall
Tim Worstall
Tech, banks, gold & precious metals, natural resources
Forbes.com

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Summary

• There's an excitement in some parts about the prospects for scandium.
• As a grizzled veteran of the scandium business, I would suggest a bit more caution.
• I would be especially wary of single product scandium miners.

I should at the outset here point out that I have had a great deal to do with the scandium industry over the years. Back when it was tiny, I was handling perhaps 50% of the global trade of a couple of tonnes Sc2O3 equivalent a year. I've sold to nearly all of the global users that you'll have heard about in the various forms of oxide, aluminium master alloy and so on. You could also start to assume that I'm talking my own book here, but I've not been involved in the industry for a few years now. Undoubtedly, I have my biases but there are no financial interests at play here at all.
I've seen, as we all have, several pieces recently telling us that various of the Australian scandium plays are interesting investments. My own opinion is that they're not and this is to do with the underlying technical issues in the industry. A decade and a half back I did some consulting for one of those Oz miners (the project has changed hands since) and I can still see some of my own phrasing in the arguments being used today. Despite that report raising exactly the concerns I'm going to tell you now.
The exemplars of this excitement:
Aluminum, scandium, and perhaps carbon fiber can replace steel to achieve light weighting of car bases (platforms). While this adds to the upfront materials cost, the long-term benefit of increased range can lessen the battery running costs and remove range anxiety. My preferred metal is scandium, as it currently has a tiny market of only around 5-15 tonnes pa. Scandium is used to weld aluminum, and is used in the higher-end electric car base. It is also used in advanced aerospace.
It is indeed used in advanced aerospace, in trial quantities at least. I even supplied the test materials to build a wing out of the stuff. But aerospace and car making have entirely different cost structures. I think it vanishingly unlikely that the car industry will use Sc at anything like the current price. Which brings me onto the next point:
Scandium oxide price - US$4,200/kg

The 99.95% scandium oxide price is quoted on Mineralprices.com at US$4,200/kg, or for 99.9% scandium metal at US$15,000/kg as of Dec 31, 2016.
The market size is estimated to be only about 15 tonnes traded pa so a very small market right now. There is potential for the scandium market to grow by several multiples especially if reliable supply can come online at more reasonable prices (~US$2,000/kg).
These were indeed reasonable prices for that time, although the metal price is an irrelevance. As I say, I spent considerable time, well over a decade, at the heart of the industry and I only ever sold 500 grammes (yes, grammes) of Sc metal in all that time. It's simply not used for anything. The relevant price is the 99.0% Sc2O3 price.
Which is where my first caution comes in. In my working life with the material - beginning in the mid-90s - Sc2O3 has been as low as $300 a kg. There really isn't any reason why it couldn't go back to that. In fact, it's heading that way right now. I can buy a not very clean 99.0% Sc2O3 from China these days at $850 a kg (no, I don't buy it but I do keep up with matters just for old time's sake).
Which is why I do look askance at those Australian miners - they've all got OpEx costs up at $1,400 per kg and the like, that's without even their CapEx costs.
Which brings me to my second concern. All of these operations need to be running at full capacity to make their current sums add up. Thus, they will be trying to produce, variously, 30, 40, perhaps 60 tonnes a year each. That material needs to go into a market which is currently 15 tonnes a year at maximum. What do we think happens to the price at that point?
Yep, it crashes.
It is possible to conceive of off take contracts whereby all the material from a processing operation is pre-sold on a take or pay basis. But does anyone really think that this will happen to three or four time total global demand at higher than the current market price? Well, OK, maybe you do, but I certainly don't.
Which brings me to my third concern. All of these Australian potential operations are processing nickel laterites. There's definitely scandium in there, no doubt about that. But let's assume that the extraction process works - I've certainly seen evidence that technically it does. At which point, why wouldn't the other nickel laterite operations already extant simply add a scandium capture circuit to those current operations? For there is indeed Sc in most of their feeds. The nickel and cobalt they're extracting already pay their capital and operational costs. They would only need extra marginal costs of the additional processing (it's not onerous) rather than to try and support the entire operation on just the scandium revenue. And who would win in a price war then? The people with a marginal little revenue from an extant operation? Or the people entirely reliant upon the scandium price for their very existence?
Do note that one of the Australian nickel laterite operations was actually designed with a scandium capture circuit installed, not that they use it. It might also be worth noting that a Samsung (OTC:SSNLF) plant in the Philippines has just added one.
Adding that scandium recovery circuit to an extant plant is obviously going to be hugely cheaper than going directly for the Sc alone.
I agree entirely that scandium is a hugely interesting metal with some great uses. I also think the market is going to expand over time. But I also think that it will be supplied by people adding capture circuits to existing operations where there is some Sc in the tailings and wastes, not by people trying to extract it only and directly, as is actually already happening. Finally, I just cannot see how anyone is going to be able to come to market with 3 or 4x current global demand and hope that the price will hold up.
Of course, I could indeed be wrong about all of this, but it just doesn't make a compelling investment case for me.
The companies I would be concerned about include, but are not limited to: Clean TeQ [ASX:CLQ] (OTCQX:CTEQF), Jervois Mining Limited [ASX:JRV], Metallica Minerals [ASX:MLM] (OTCPK:MLMZF), and Scandium International Mining Corp. [TSX:SCY] (OTC:SCYYF)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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