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" Sons of Gwalia, the world’s biggest producer of tantalum and now under new management, is believed to have recently renewed its long-term take or pay contracts at around US$60 per lb."


Feature Story
Date: November 08, 2005

Tertiary Minerals Encouraged By Recovery In Tantalum Market.

By Jack Hammer

Patrick Cheetham has an enviable track record of mine finding. At WMC he found two gold projects that went into production. He later set up Australian companies Dragon Mining and Archaean Gold, which between them found a gold, a platinum and a zinc-silver deposit, all in Australia. “He’s a bloody good geologist and he’s delivered the goods before,” says Laurie Beevers of house broker WH Ireland, “He’s dead straight, too”.

But, having ventured outside of comfortable Oz with Tertiary Minerals, which listed on Aim at the back end of 1999, Mr Cheetham has made slow progress. Tertiary’s key asset is the Ghurayyah tantalum, niobium and zirconium deposit in Saudi Arabia, although it also has some promising IOCG (iron oxide copper gold), gold, and nickel exploration ground in Scandinavia, and a 26 per cent stake in Finnish diamond play Sunrise Diamonds. But it’s been a stock market dog for some time now, primarily because of the collapse in tantalum prices after the dotcom crash, but also because a key institutional investor has been selling down, seemingly unconcerned about the price.

That promoting is not one of Mr Cheetham’s strong points hasn’t helped, although his ability to economise has. As Mr Beevers says: “Patrick can run a company on the smell of an oily rag”. He has needed to too, as exploration companies have gone out of style and the share price has drifted to an all time low of 3.5p. It’s got to the stage where discounting the 26 per cent stake in Sunrise and £350,000 of cash in the bank, Tertiary’s £1.6m market capitalisation implies a valuation of just £850,000 for its entire exploration and development portfolio. For those who believe in efficient markets that may seem fair, but it rather assumes that Tertiary won’t make much headway anywhere. Mr Cheetham’s track record suggests otherwise, though, and he himself takes a more optimistic view.

“Tantalum is yesterday’s story”, he says. “It needs someone to point out that the market has recovered”. Mr Cheetham himself recently presented to the Tantalum and Niobium World Symposium in Thailand, although one can assume he was preaching to the converted there. Nonetheless interest in tantalum is picking up, as demand, almost all of it fuelled by industrial consumption, is back at the 6 million lbs per year record level it hit in 2000, when the dotcom boom was at its height. Prices are unlikely to rise to the highs they hit back then, but they have been strengthening – Sons of Gwalia, the world’s biggest producer of tantalum and now under new management, is believed to have recently renewed its long-term take or pay contracts at around US$60 per lb.

So as sentiment improves the challenge for Tertiary is to convince investors that Ghurayyah can actually be put into production. As the world’s largest tantalum deposit by contained metal in the ground, and outcropping at surface, it’s not a bad asset. Current numbers show 385million tonnes grading 0.024 % tantalum pentoxide, 0.28 % niobium pentoxide and 0.89 % zirconium oxide. It also contains some uranium and rare earth metals, although little work has yet been done on whether or not they really add value. It should cost around US$2 per tonne to mine Ghurayyah, with the real expense coming afterwards at the processing stage. Mr Cheetham has examined various processing scenarios, all of which have shown an IRR (internal rate of return) of 25 per cent or better. It’s likely to cost around US$60-$100 million to get into production, although much of that may be financed by soft loans from the Saudi government.

To get it to feasibility stage though, which will require about US$7million, Tertiary is planning to take on a Saudi partner. “Negotiations are in progress,” says Mr Cheetham, “progress is positive”. It’s possible such a deal may inject extra cash into Tertiary too, though the current cash balance is enough to finance Tertiary’s immediate drilling plans in Scandinavia. If any of those Scandinavian projects deliver, or if Ghurayyah moves closer to production, a re-rating of the shares looks highly likely.