Time is our enemy,
~ Paul Savich
Commodities with economies of scale
What is the cost price to produce 1kg of Ferroniobium?
This information is pulled from Cradle Resources' DFS 2016 and CMOC’s quarterly reports. Note that I accounted for inflation for the 2016 DFS of Cradle Resources. Also, it’s important to consider that DFS studies tend to present a lower cost price to attract investment capital.
Now, the tricky part:
Trying to determine CBMM’s cost price for 1 kg of Ferroniobium. As a private company, CBMM keeps this information tightly secured. However, we can estimate by looking at throughput and grade to determine the cost price. Obviously, scaled production and higher grades would reduce the cost price.
Estimation Approach:
We observe that CMOC's cost price is $26.97 USD per kg with a 1.01% feed grade, while Cradle's cost price, adjusted for 2024 inflation, is $32.95 USD per kg with a feed grade of around 0.54%. Given CBMM's significantly higher feed grade (2.5% to 3%) and economies of scale, their cost price per kg of niobium is likely lower than both CMOC’s and Cradle’s.
Hypothetical Estimation:
Relative Efficiency: If we assume that CBMM’s higher feed grade and production efficiency lead to a proportional decrease in costs, we might estimate that CBMM's costs could be 30% to 50% lower than CMOC's cost per kg.
Based on the comparison between Cradle and CMOC, the estimated cost price for CBMM to produce 1 kg of Ferroniobium could be in the range of $13.49 to $18.88 USD per kg. This range reflects CBMM's higher feed grade and larger production scale, resulting in greater cost efficiency. Let’s pick a round number: USD $15 per 1 kg of Ferroniobium.
Market Dynamics:
CBMM controls 90% of the market, and their profit margins are unheard of—comparable only to the last lithium bull run. With a $15 cost against a sale price of $40-$45 per kg, CBMM has the power of price control. They’ve structured the market so that all three main producers win. However, if they wanted to, they could cause the price to drop below $20 per kilo and still make a profit, potentially eliminating the other two producers.
Now, after almost 70 years, Luni has been found—a deposit to rival Araxá. Early metallurgical studies and the initial MRE show a promising, high-grade, well-liberated, shallow ore body. The initial MRE highlighted a high-grade zone of 52mt @ 2.1%. Keep in mind, this is “initial”; it will likely improve over time. If Luni comes online with the right plant size and conditions, it may also be a $15 cost producer, potentially disrupting CBMM’s control and rendering the other two small producers obsolete.
CBMM wouldn’t want this to happen. Initially, I thought they might make room in the market share to accommodate Luni and keep everyone happy.
But then I started thinking about Paul’s comment, "Time is our enemy." Many of you may have your own interpretations of this. I considered it from a few perspectives.
Lens one:
Develop in time to capitalize on the potential Niobium battery boom replacing standard lithium.
Lens two:
Develop quickly while the momentum is there to secure funding from investors.
Lens three (my favorite):
Time is the enemy in the sense that these are not only Paul’s words but possibly CBMM’s as well. There’s no doubt Paul would have open lines of communication with CBMM, especially through Gustavo.
If I were CBMM, the last thing I’d want is for a Gina or BHP to take over Luni, ramp it up, and sell Ferroniobium below $26. This would break the monopoly on niobium and destroy the cash cow that is Araxá.
CBMM would want to ensure WA1 joins the party and plays by the rules.
Thanks to @jcmyck ,@Dabbler009 , and @ozblue for the commentary on the broker data thread, noting that someone is sitting just under the 5% threshold with around 3 million shares on the register.
What if it’s CBMM? They could be sitting on the edge of 5% while they wait for FIRB approval to acquire a larger stake in WA1, ensuring they can block any takeover offer.
(20min delay)