NioCorp Developments — Niobium husking

NioCorp is focused on the extraction of several critical minerals from the Elk Creek mine in Nebraska. Operating within a single polymetallic ore body, enriched in all of the rare earth elements (REEs), according to its June 2022 DFS, NioCorp aims to produce three principal commercial metal products (niobium, scandium and titanium), all of which are considered ‘critical’ by the US government over a period of almost four decades. To date, it has signed offtake agreements covering 75% of forecast ferro-niobium production and 10–15% of scandium production. It has also signed a rare earth off-take term sheet with Stellantis and is working on other potential offtake agreements with makers of scandium-aluminium alloys. Currently, Elk Creek contains the second largest ‘indicated’ or better rare earth resource in the US. Once developed – with first production potentially as early as FY27 – it will be North America’s only operation producing niobium, scandium, titanium and REEs, with revenue of c US$526m and EBITDA of c US$350m pa.

NioCorp’s DFS in June 2022 calculated a pre-tax IRR on the Elk Creek project of 29.2% (in US dollar terms) and a post-tax NPV of US$2,350m at an 8% discount rate. This equates to US$70.51 per share in issue, to which NioCorp’s shares are currently trading at a 95.6% discount. Adjusted for sovereign risk as well as stage of development (ie DFS), we calculate that an EV/NPV ratio of 33.3% is appropriate, which reduces our valuation to US$23.48/share. Similarly, adjusted for the overall risk of commerciality, we calculate that an EV/NPV ratio of 22.4% and a valuation of US$15.79/share are appropriate. Alternatively, valuing the company based on the present value of future dividends (discounted at 10%), after an assumed US$425.5m equity raising, we calculate a fully diluted valuation for NioCorp of US$7.16/share, rising to a peak of US$16.87/share in FY33, despite adopting a notably conservative long-term ferro-niobium price.

As with almost all natural resources companies, the most significant sensitivities regarding our valuation of NioCorp relate to prices, opex and capex. Each ±10% change in the niobium price changes our valuation of the Elk Creek project by ±8.8%, while each ±10% change in the scandium price changes it by ±12.1%. As such, our project and company valuations are more sensitive to changes in the scandium price than the niobium price. Changing all product prices by ±10% changes our valuation by ±29.6%. By contrast, changes in mining and processing costs of ±10% – with all other costs effectively being deemed fixed – would change our project valuation by only ±9.1%, while similar changes to our estimate of initial capex would change it by ±6.6%. However, given the project’s long life, both the project valuation and the company valuation are more than usually sensitive to the discount rate applied to either cash flows or dividend flows (see Exhibit 24).

NioCorp had US$2.3m in cash on its balance sheet at end-FY23 and US$8.4m in net debt. Apart from a small lease liability of US$0.2m, all of NioCorp’s debt is in the form of unsecured convertible debentures issued to Yorkville in March 2023 and maturing on 17 September 2024. Based on the company’s closing common share price of US$3.63 as of 30 September 2023, conversion of the remaining convertible debenture balance of US$6.9m, including accrued interest, would require the issuance of approximately 2,448,730 common shares (or just 7.3% of those currently in issue after a small private placement in December including management and insider participation). More significantly, over the next 12 months, we would expect NioCorp to present a funding solution to investors for the development of the Elk Creek project, including equity.

NioCorp Developments (NioCorp) is a publicly listed (Nasdaq and TSX) company, focused on the extraction of several critical minerals from the proposed Elk Creek mine in Nebraska, US. Operating within a single polymetallic ore body, enriched in all of the REEs and notably in neodymium, praseodymium, terbium and dysprosium, NioCorp aims to produce three principal commercial metal products – namely niobium, scandium and titanium – which are all considered by the US government to be ‘critical minerals’. If NioCorp elects to produce REEs, as expected, it will be North America’s only operation to produce niobium, scandium, titanium and REEs.

In 2022, a technical report outlined the potential for a 38-year life of mine, capable of producing a total of 171,140t niobium (in the form of ferro-niobium), 3,676t scandium and 431,793t of titanium.

Formerly known as the Quantum Rare Earth Developments Corp, NioCorp came into existence on 3 March 2013. Since 2014, NioCorp has completed metallurgical testing, core drilling, mineral resource updates in 2014 and 2015, two preliminary economic assessments in 2015, feasibility studies in 2017 and 2019 and, most recently, a final DFS in June 2022.

Prior to Quantum/Niocorp’s ownership of Elk Creek, the United States Geological Survey (USGS) completed preliminary geological exploration on the area via airborne magnetic surveys (1963–64), with the Elk Creek gravity anomaly being discovered in 1970 during a reconnaissance gravity geophysical survey, undertaken by the University of Nebraska-Lincoln. Land packages were then initially controlled by Cominco American and Molycorp during the early 1970s. Subsequent detailed exploration was predominantly undertaken by Molycorp prior to 1986, resulting in an internal tonnage and grade estimate of 39.4Mt at 0.82% Nb2O5, open to the north, west and at depth. Thereafter, no further exploration was recorded on the property until 2011.

The Elk Creek Project is located in south-east Nebraska, US, approximately 75km south-east of Lincoln, the state capital. The local topography of eastern Nebraska is relatively low relief with shallow rolling hills intersected by shallow river valleys, and the climate is generally characterised by hot, humid summers and cold winters, with the potential for seasonal (spring/summer) thunderstorms and tornadoes.

The property consists of one parcel of land of 91ha (226 acres) owned by NioCorp with eight option to purchase (OTP) agreements in the adjacent area totalling a further 565ha (1,396 acres), the majority expiring between 2024 and 2040. The parcel owned by the company contains the majority of mineral resources and mineral reserves associated with the project, with NioCorp retaining 100% of the mineral rights. The OTP agreements include access to the land for drilling activities and associated mineral exploration and project development work, in return for an option payment to the landowner. It should be noted that the OTPs have been in place since 2009, generally have fiveyear terms and the company has been successful in renewing or extending them. A 2% net smelter royalty (NSR) becomes effective only if NioCorp exercises its option and purchases the land.

The property is easily accessible year-round as it is situated approximately 75km south-east of Lincoln and approximately 110km south of Omaha. Access to the site can be achieved directly via paved road (state highway N-50) or from one of the regional airports, which fly regularly to both Lincoln and Omaha (albeit, the project is most easily accessible from Lincoln, see Exhibit 1).

From Lincoln Municipal Airport, the property is accessed via paved roads on the main network and a secondary network of gravel roads closer to site.

Regionally, Nebraska’s Precambrian basement has diverse rock types, being predominantly granite, diorite, basalt, anorthosite, gneiss, schist and clastic sediments. Island arcs fused with the Archean continent, forming the initial region’s geology, which influenced the later midcontinental rift system (Keweenawan Rift), 1.0–1.2 billion years (Ga) ago. The Keweenawan Rift comprises mafic igneous rocks and appears as a 2,000km long and 55km wide belt, linking geology across Michigan, Wisconsin, Minnesota, Iowa, Nebraska and into Kansas. The Elk Creek carbonatite lies in the north-east Nemaha Uplift (300 Ma), intruding into the older Precambrian granitic and low- to medium-grade metamorphic basement rocks (Exhibit 2). Regional north-north-east to north-east striking faults are locally intersected by north-west trending shear zones.

Approximately 200m of Paleozoic rocks cover the carbonatite region, which are mostly flat-lying Pennsylvanian marine strata consisting of carbonates, sandstones and shales. In addition, the eastern portion of Nebraska was glaciated several times throughout the early Pleistocene, resulting in the deposition of up to 50m of unconsolidated till.

Locally, the geology is dominated by the carbonatite that has intruded into older Precambrian granitic and low- to medium-grade metamorphic basement rocks, unconformably overlain by approximately 200m of Paleozoic marine sedimentary rocks. Owing to this cover, there is no surface outcrop of carbonatite within the area, which was instead identified following magnetic surveys and confirmed via subsequent drilling. The available magnetic data indicate dominant north-east, west-north-west striking lineaments and secondary north-west and north-oriented features that mimic the position of regional faults parallel and/or perpendicular to the Nemaha Uplift.

Beneath the Paleozoic marine sedimentary rocks, the Elk Creek carbonatite consists predominantly of dolomite, calcite and ankerite, among a mix of other minerals. It is formed as an elliptical magmatic body with a north-west-trending long axis perpendicular to the strike of the Keweenawan Rift, located at the northern part of the Nemaha uplift (Exhibit 2). Current drill holes suggest that the carbonatite is intrusive to the Pennsylvanian sequence. This is in contrast to the earlier interpretation that the sedimentary system post-dated the carbonatite, with intrusion originally estimated at c 500Ma in response to stress along the Nemaha Uplift boundary.

Exhibit 3 provides a breakdown of Elk Creek’s resources by metal:

In 2019, NioCorp produced a mineral reserve, using 2014 CIM Definition Standards, of 36.7Mt (diluted) at an average grade of 0.81% Nb2O5 (niobium oxide), 2.92% TiO2 (titanium dioxide) and 70.2ppm Sc (scandium), around which an underground mine design has been developed.

Notable assumptions made in relation to the reserve calculations were as follows:

Exhibit 5, below, serves to demonstrate the enormity of the resource at Elk Creek relative to the small portion that NioCorp is initially intending to develop:

Exploration completed to date has resulted in the delineation of the Elk Creek deposit to the standards of a mineral reserve. As per the qualified geologist employed during the DFS, it is understood that there are no drilling, sampling or recovery factors that could materially affect the accuracy and reliability of the current estimates.

Following the completion of the mineral reserve estimate, NioCorp is now working towards development of an underground mine at Elk Creek. Based on geotechnical information and mineralisation geometry, an underground long-hole stoping method has been determined to be suitable for the deposit. Paste backfill is to be used to allow higher recovery rates and to minimise waste.

The nature of the local geology places the orebody within the centre of the 6–8km diameter carbonatite intrusion extending to depths in excess of 1,000m, superimposed upon by a 30m thick layer of low permeability, Pleistocene-aged, glacial till, overlying a 180m thick low-permeability Pennsylvanian-aged shale and limestone unit. The mineable orebody is located approximately 90–600m below the top of the carbonatite, made up of largely unfractured carbonatite and other volcanics, intersected with rubble zones, probably caused by faulting, with some associated evidence of dissolution on joints and fractures.

A geotechnical assessment of the orebody shape and ground conditions has determined that underground long-hole open stoping is an appropriate mining method to be used at Elk Creek. Using a bottom-up approach, the extraction will be split into two sections – an upper and lower block – split by a partial sill pillar level, designed to be left between these two mining blocks. Stope width will be 15m, although stope length will vary (based on the Nb2O5 mineralisation grade) up to a maximum of 25m per panel with a level spacing of 40m to optimise operational costs. A primary/secondary extraction sequence with tight back-filling will allow productive ore recovery while maintaining ground stability. Primary stopes will be back-filled with cemented paste, while secondary stopes will be back-filled with low-cemented paste and un-cemented waste rock from underground development activities. The back-fill is designed to allow for mining near filled stopes, removing the need for rib pillars. The mine design and mine plan used an average cut-off grade of 0.679% Nb2O5 with an NSR of US$180/t and a milling constraint of 2,764 tonnes per day, resulting in an average annual production rate of c 7,500 tonnes ferro-niobium per annum.

Aside from access via Nebraska’s highway system, there is currently no existing infrastructure on site at Elk Creek. In due course, the project will require surface and underground infrastructure, as well as surface tailings and salt storage facilities, including a range of ancillary infrastructure such as safety facilities, transportation links, telecommunications and maintenance facilities. At the same time, off-site infrastructure will include a new high voltage transmission line, providing power to an on-site primary sub-station and 45km natural gas pipeline.

Processing will be achieved via a three-stage process:

At present, production and mine design are controlled largely by the demand for niobium, as dictated by market conditions. Stope development and, in turn, processing of scandium and/or titanium is a secondary consideration. However, if scandium and/or titanium demand remains intact and the processing plant can increase throughput capacity, possibly via a separate circuit for other metals, it could add further revenue streams within the existing vertical extent of the present mine design (eg the unseparated samarium-europium-gadolinium concentrate). Alternatively, the plant at Elk Creek could be used for the toll treatment of third-party ores similarly produced in North America.

NioCorp has executed a total of three confirmed offtake agreements covering its ferro-niobium (2) and scandium oxide (1) production.

Each ferro-niobium agreement has a 10-year term, which, when combined, accounts for 75% of projected production being contracted, as outlined below:

All settlement (off-take agreement) Nb prices have a 3.75% discount to the netback price, which is derived from the benchmark price minus the buyer’s logistics costs.

We assume that all annual FeNb production not sold under an offtake agreement will be sold in the spot market on an ex-mine gate basis with a 10-day net due outstanding accounts receivable term.

The scandium oxide offtake agreement is structured similarly, with a 10-year term and a minimum size of 12tpa, which equates to approximately 10–15% of projected annual production. Furthermore, the customer may elect to take more material in any given year above the prescribed minimum quantity.

With these three agreements, we calculate that 27.5% of NioCorp’s total life of mine gross revenue is contracted for. To date, no offtake agreements have been executed for titanium products. In their absence, we similarly assume that all titanium production will be sold at spot (or benchmark) pricing on an ex-mine gate basis with a similar 10-day net due outstanding accounts receivable term.

However, on 6 July 2023, NioCorp announced signing a rare earth off-take term sheet with Stellantis (the multinational automotive manufacturing company formed from the merger of Fiat Chrysler and the French PSA Group) with the dual intention of accelerating NioCorp’s path to commercial production of magnetic rare earth oxides in the US and supporting Stellantis’s commitment to build resilient supply chains and reach carbon net zero by 2038. Final volumes will be confirmed in a definitive agreement. However, the term sheet envisions a definitive agreement for a 10-year offtake contract for specific amounts of neodymium-praseodymium oxide, dysprosium oxide and terbium oxide that NioCorp intends to produce at Elk Creek.

In the meantime, NioCorp is also working on other potential offtake agreements with interested parties in a number of industries under the provisions of non-disclosure agreements (NDAs). These include the following:

Relative to Elk Creek’s DFS, we have made two significant alterations to NioCorp’s business plan in constructing our financial model of both the mine and, ultimately the company. These are:

By contrast, at this stage, we have not considered the possibility that NioCorp will look to produce a scandium-aluminium alloy or master alloy. However, we understand that it is in discussions with interested parties on this subject and believe that it is a distinct possibility.

In formulating our financial model for NioCorp, we have made certain assumptions about product prices as well as a number of physical and cost parameters. These are summarised below with reference to the equivalent assumptions in NioCorp’s June 2022 DFS.

In general, our assumptions regarding the physical characteristics of the orebody, mine and process plant have remained close to those set out in the DFS, as shown below:

In contrast to our physical parameter assumptions, our cost parameter assumptions have generally been increased to reflect known inflation in certain line items relative to the costs apparent at the time of the company’s Elk Creek DFS in June 2022. They have also been increased to reflect the inclusion of rare earth oxide and TiCl4 processing costs.

Other costs relate to water management, tailings management, miscellaneous infrastructure, general & administrative and freight costs and county property taxes. With the exception of county property taxes (which have been assumed to amount to 1.72% of tangible fixed investment) and after an initial period of ramp-up, these costs have generally been assumed to be fixed at a steady-state level of throughput. A 2% NSR has also been assumed.

Federal and state corporation tax has been assumed at a rate of 24.99%, with taxes only payable once initial capital invested and pre-commercial production losses have been recouped.

A description of NioCorp’s products’ applications and markets is provided in the Appendix at the end of this document. Otherwise, Edison’s price assumptions have been determined independently, according to its own analyses, and are briefly outlined below. The most important prices with respect to the Elk Creek Project are those for niobium (in the form of ferro-niobium) and scandium, which together account for approximately 70% of life of mine total gross revenue, with titanium accounting for a further 15%. Four rare earth oxides – neodymium, praseodymium, terbium and dysprosium – make up the remaining 15%.

The fundamentals of the niobium market remain similar to those at the time of our note Niobium – The envy of the gods, published in August 2016. Significantly, niobium materials are not openly traded on any metal exchange. Key characteristics of the niobium market therefore are the important role played by bilateral contracts between buyers and sellers, which cover c 95% of total sales. Under these contracts, FeNb is sold directly to steelmakers, with prices typically fixed for the year, bi-yearly or on a quarterly basis, which has led to a highly stable pricing environment. Hence, between 1991 and 2005, the average export price for Brazilian ferro-niobium remained (almost exclusively) within the range of US$12.5–13.5/kg contained Nb. That changed in 2006 however, with average import prices for ferro-niobium reported by major importing countries more than doubling in 2008 relative to 2005, despite Companhia Brasileira de Metalurgia e Mineração (CBMM) doubling its niobium production capacity over the same period. What is more, while the rate of price increases slowed at the height of the global financial crisis in 2009, it did not reverse (indicating price inelasticity to demand), but instead reached a peak in 2012–13, before moderating very slightly in 2015.

Since establishing itself at its higher benchmark in 2012, the price of ferro-niobium has averaged US$38.87/kg (±US$8.00/kg) and we have therefore (conservatively) adopted this as our long-term, real price. Nevertheless, even at current prices, niobium inputs constitute only a very small portion of steelmaking input costs (eg c US$2.00 per tonne of steel produced).

The current weakness in the pricing environment for niobium can be attributed to weakness in global GDP growth. However, these price declines have also been confined to a reasonable range by tight supply and the rising environmental cost (among other things) of new plants. As a result, the requirement for access to high-quality ores has become more important to consumers in sourcing raw materials.

Owing to its small size and existing concentrated end-uses, scandium pricing is opaque. The USGS indicates prices in the region of US$2,100–4,600/kg (average US$3,300/kg, with US$2,100/kg in 2022) in recent years, but some sources quote recent spot prices in China closer to US$1,500–2,000/kg. Given that no reliable exchange price exists and the extremely small current market is also dominated by one offtaker without publicly available commercial terms, caution needs to be applied in using historical pricing as a guide to the future.

Long-run commodity prices are commonly estimated using a variety of methods, including marginal cash cost, incentive prices of new production and value in use analysis (particularly for product differential/premiums). We believe value in use (ie the potential value as an additive to aluminium alloying) is the most appropriate method to estimate long-run prices for scandium as we believe the future market will be substantially larger than at present (several hundreds of tonnes rather than the current 20–30t) and supplied from new sources of supply. Either way, the market, as it develops, is likely to remain quite concentrated and one where close cooperation develops between consumers and producers regarding supply and price, with the interest of both best served by prices that encourage the competitiveness and economics of new alloys.

In terms of supply availability, we are aware of potential sources of scandium supply from new mines (six to eight potential non-Chinese producers, including NioCorp), with potential total aggregate production in the region of 250–300Mtpa. Many analysts have assumed scandium prices in the region of US$1,000–3000+/kg, so it is reasonable to assume that this is at least an incentive price floor for this size of supply. Our analysis below indicates that it will be a competitive material with prices in the region of US$2,500/kg and that the volume of demand could, in theory, be significant.

Emerging end-uses

Large-scale demand is likely to be in the form of scandium in producing new aluminium alloys for specific applications. Scandium alloy materials’ behaviour (like most alloying processes) is relatively complex, but in summary scandium has a number of beneficial effects, principally in increasing strength and heat resistance. It does this by:

This effect is seen across the various families of aluminium alloys, but usually with relatively small additional scandium additions (0.1–0.5%). As an example, according to data from Hydro Aluminium, for the commonly used 5xxx alloys (Al-Mg based), strength increases 150% (2.5-fold) for scandium additions of 0.1–0.25% while maintaining ductility and plasticity, which is essential for manufacturing processes. There are three potential benefits:

The effect of overall cost for weight reduction is illustrated below for a common 5xxx series aluminium alloy. Exhibit 9 shows the cost of adding varying quantities of scandium at US$2,500/kg (oxide basis). The cost rises as scandium replaces aluminium in the metal (we are assuming a generic 5xxx alloy and displacing only aluminium with scandium in this analysis). We also include the cost allowing for strength change described above (ie the volume impact of being able to potentially use less material for a given function). We exclude from this analysis the cost of oxide through to metal addition, but also the savings made from alloys not requiring heat treatment. For example, scandium increases the recrystallisation temperature of aluminium alloys to above 600°C, significantly above the range of heat treatable alloys.

This analysis indicates that weight savings alone potentially justify the use of scandium up to 0.12% at US$2,500/kg and up to 0.2% at US$1,500/kg. At US$1,500/kg, the majority of 0.05–0.25% scandium alloys in the 5xxxx alloy category could be justified on weight savings alone. This is probably unrealistically low from a value in use viewpoint, as it is before any potential benefits that come from lightweighting to the consumer, which are likely to add considerably to the attractiveness of the alloy usage. As such, we believe an assumption of US$2,500/kg is reasonable, which allows for value in use (lightweighting, emissions offsets) to also be reflected in pricing.

There are two potential effects of the adoption of scandium alloys: intrusion into the conventional alloy market, and then potentially new applications and increases in share of materials for applications that do not currently use aluminium. In terms of very broad scope, the global primary aluminium market is approximately 65Mt, much of which is used in applications where a scandium alloy is likely not to be of interest (eg food packaging). Approximately 23% (c 15Mtpa) is used in transportation (light and heavy vehicles, airlines, rail and public transport). At 0.2% scandium content (the midpoint of potential intrusion of 5xxxx alloys, which are common in transport applications), this would require 10ktpa of scandium after weight reduction. This is, of course, an unrealistic target but does highlight that small market intrusions would have a strong impact on scandium demand. For 500tpa to be realised, only a c 5% market intrusion into this subsection of alloy demand would be required.

This also does not take into account that scandium alloys could be used in applications where aluminium is currently not used as a material (ie applications using iron and steel). Higher heat resistance means that aluminium alloys can be used to displace other materials such as iron or steel in various components, reducing weight. This means that engine and other automotive parts could see a displacement of other materials in large-scale applications such as automotive and electric vehicles (EVs). Russian aluminium producer Rusal, for example, has examined using a very low scandium content alloy (Alloy ‘1581’ alloy with 0.03% scandium) in railcar applications to boost longevity.

We do not include a forecast by year of scandium demand as clearly the market in aluminium alloys is the key volume impact and this is somewhat ‘build it and they will come’ in concept (ie major producers cannot adopt scandium alloys until the market is widely available, as any usage would dwarf current supply and create extreme price spikes). Nevertheless, we believe it is reasonable that over the course of the 2020s a market of several hundred tonnes emerges and that this is supplied by largely new sources of primary scandium supply, most likely under long-term offtake arrangements.

The only broadly traded market of significant volume for TiCl4 in the world is in China, where the vast majority of production is sold to titanium sponge manufacturers.

Prices in China were stable at CNY8,500/t (US$1,195/t) on average in Q422, owing to lower operating rates amid renewed COVID-19 restrictions, but then generally declined in 2023, in part reflecting general global economic conditions and in part in line with lower chlorine gas prices.

Notwithstanding the recent weakness in the ex-works China price of TiCl4, its average price over the prior 12.75 years has been US$1,043/t – to which the equivalent US price has traded at a 51.2% premium – implying an average US price over the same period of US$1,577/t, which we have therefore adopted as our long-term, real price of TiCl4, although it is worth noting that the price of tickle now is about three times more sensitive to the price of chlorine than it was in 2021 (the last US price point in Exhibit 11).

The major two REEs in demand for the energy transition are neodymium (Nd) and praseodymium (Pr), owing to their use in high strength NdFeB magnets. Broadly, NdFeB magnets were commercialised during the 1980s, initially in uses such as computer hard disk drives, but then in applications such as small electric motors. Demand has since accelerated in uses where large magnets or induced magnetic fields had traditionally dominated, principally electric motors in vehicles and generators in large wind turbines. Total global demand for NdPr was approximately 50,000t in 2022, with wind turbine magnets accounting for approximately 18% and electric vehicle (EV) motors accounting for approximately 15%. The balance of demand is a wide range of small electric motors used in vehicles and automation more generally.

Based on a split of 70% dual motor and 30% single motor (2019 average), we estimate that an EV currently contains in the order of 1kg of REO (a mix of neodymium and praseodymium oxides), which goes into making a magnet that weighs approximately 2.8kg. As an order of magnitude, the full electrification of 100m personal vehicles would therefore require annual demand of c 100,000t. Wind energy will also strongly add to demand growth; offshore wind turbines, in particular, consume approximately 213kg/MW (213t/GW) REOs cf 61kg/MW (61t/GW) for their onshore brethren. At the same time, there is a trend towards less complex, low speed direct drive turbines as this improves operating costs, particularly for offshore wind farms.

Both wind turbines and EVs can avoid the use of NdPr by using motors/generators that mechanically induce an electric field for their operation. However, powerful permanent magnets improve vehicle efficiency by approximately 3% for an EV, critical for adding to range and particularly useful in low-speed, high-torque, stop-start city driving. As a result, based on a 70:30 dual motor to single motor split (2019 average), a typical EV might currently contain 2.5–3.0kg of rare earth magnets that need approximately 1kg of NdPr to produce (the balance being iron and boron). This means that rare earths add perhaps US$70 to the materials cost of a vehicle at long-run prices, which is small in comparison to the trade off in other materials usage for the additional motor efficiency.

Wind turbines can also use induction motors rather than rare-earth motors, but again there are cost and efficiency issues at play. As wind power has progressively moved offshore, wind turbines have become far larger and needed to be designed for minimal maintenance. This favours a direct-drive mechanism based on permanent magnets rather than highly geared, faster rotating induction motors.

Rare earths are very politically exposed. Rare earth mining and processing has become dominated by China over the past two decades, in part owing to lower prices forcing out western suppliers and, in part, owing to its being one industry where China has a natural resource endowment. China accounted for 70% of rare earth mined production in 2022. However, this was as high as 90% in recent years. Moreover, the next largest producer (the United States at 14%) has been sending its mined rare earth concentrates to China for processing. This is now ending, with the US shifting to domestic rare earth separation and ultimately magnet making (US production is dominated by US-listed MP Materials, which has been striking backward integration partnerships with General Motors). De-globalising rare earth supply chains is a key long-term strategic priority in terms of supplying energy transition materials.

Exhibit 14 below shows the long-run Nd oxide price (note that Pr prices are very similar). There was a spike in 2011 driven by a political dispute between China and Japan which resulted in a restriction in supply. For much of the 2011–19 period, Nd oxide prices gravitated towards US$50/kg (in nominal terms), which resulted in much of western mining separating and closing, as well as the domination of China as a source of supply. Since 2020, prices have increased rapidly as end-use demand has accelerated, with spot prices peaking at US$160/kg (see Exhibits 14 and 15), before retreating during the course of 2023 (following the decline in lithium prices and a shorter downcycle in demand for EV materials). Given the structural acceleration in demand and the need for a diversification in supply, a return to the US$50/kg levels seen in the 2011–19 period (c US$70/kg in inflation adjusted terms and similar to the current spot price) seems unlikely in our view. High-quality western producers need higher incentive prices to bring on production and the structural demand from EVs and wind energy will continue. In our view, a price in the region of US$95/kg for Nd/Pr oxide is a reasonable long-run assumption and one that should enable continued growth of non-Chinese value chains.

For terbium and dysprosium oxides, we believe that prices of US$1,125/kg and US$436/kg are appropriate. For terbium, this compares with a current price of US$1,143/kg and an average price, since April 2013, of US$838/kg. However, this assumption may well prove conservative, given that demand is likely to follow the pattern for Nd/Pr and there are no substitutes (despite 20 years of trying). For dysprosium oxide, it compares with a current price of US$370.50/kg and an average price, since April 2013, of US$295/kg (see Exhibits 16 and 17, below).

A comparison of the metals prices used by Edison in our valuation of Elk Creek and of NioCorp, relative to those used in NioCorp’s June 2022 DFS, is as follows:

NioCorp’s definitive feasibility study – effective date 28 June 2022 – calculated a pre-tax IRR on the Elk Creek project of 29.2% (in US dollar terms) and a post-tax NPV of US$2,350m at an 8% discount rate. With 33.3m shares in issue after completion of a small, US$1.29m private placement in December, this post-tax NPV equates to US$70.51 per share in issue.

Stated alternatively, NioCorp’s current enterprise value of US$108.7m equates to only 4.6% of the company’s attributable project NPV.

Risk associated with the Elk Creek project may be assumed to comprise sovereign risk, geological risk, metallurgical risk, engineering risk and management risk (also including funding risk). Two of these risks – sovereign risk and an overall ‘commerciality risk’ – may immediately be adjusted for.

Although it is not as famous for mining as neighbouring Colorado, Nebraska is a major producer of construction sand and gravel and crushed stone. It also produces common clay, industrial sand and gravel, lime and Portland cement. A brief comparison between the two is as follows:

In our report, Gold stars and black holes, published in January 2019, we calculated that companies with completed definitive (or bankable) feasibility studies conducted at an 8% discount rate commanded valuations between -2.1% and 36.3% of attributable project NPV with an average of 19.3% (see Exhibit 194 on page 99).

According to the Fraser Institute, Colorado ranks almost at the top of the jurisdictions most attractive to mining investment – below Nevada, Western Australia, Saskatchewan and Newfoundland and Labrador, but above the Northern Territory, Arizona, Quebec, South Australia and Botswana.

The mean Fraser Institute investment attractiveness score for all jurisdictions is 64.91, which is between the scores for Burkina Faso and the Ivory Coast. If this is deemed to attract an average valuation of 19.3% of attributable NPV and the top and bottom halves of the sample are presumed to attract valuations with respect to the average and pro rata to their scores, then a company with an average project in Colorado – which, for these purposes, may be taken as the closest possible analogue to Nebraska – may be expected to attract a valuation of 33.3% of attributable project NPV. For NioCorp, this would imply a valuation of US$23.48/share. Note that this compares with the company’s current valuation of only 4.6% of attributable project NPV.

In the same analysis (Gold stars and black holes), we calculated a statistically significant relationship between the valuation of a company and its IRR, which is shown in the graph below.

On the basis of Elk Creek’s DFS pre-tax IRR of 29.2%, therefore, NioCorp could be expected to command a valuation of 22.4% of Elk Creek’s NPV, or US$15.79/share.

Readers should note that, if a multiple regression analysis between IRR and Fraser Institute Investment Attractiveness scores and a company’s enterprise value/NPV ratio is performed and the resulting equation applied to NioCorp, a 31.2% enterprise value/NPV ratio is predicted. This implies a valuation of US$22.00/share (ie between the other two risk-adjusted valuations of US$23.48/share and US$15.79/share).

In contrast to Elk Creek’s NPV based on its June 2022 DFS, if we apply Edison’s somewhat more conservative cost, capex, physical and metal price assumptions, we calculate an unlevered NPV for the project of US$971.7m, or US$29.16/share, at our customary 10% discount rate (including head office costs).

Our valuation of NioCorp differs from our valuation of the Elk Creek project in that it values the company based on our estimate of the maximum dividends that it could pay to shareholders (discounted, initially, at a 10% rate). It also explicitly assumes the following:

On the basis of these assumptions, we calculate an immediate valuation for NioCorp of US$7.16/share, rising to a peak of US$16.87/share in FY33 on the cusp of the company’s first significant dividend, as shown in Exhibit 22, below:

In this case, all of the risk previously alluded to may be considered to be captured in NioCorp’s currently prevailing share price and therefore little or no further risk adjustments are necessary.

Alternatively, it can be stated that an investment in NioCorp’s shares at the current share price should generate an IRR for investors equivalent to 15.8% per year for the 44 years from FY24 until FY68 in US dollar terms.

As with almost all natural resources companies, the most significant sensitivities regarding our valuation of NioCorp relate to prices, costs (both opex and capex) and the discount rate applied to discounted cash flow and discounted dividend flow analyses. Sensitivities to price and cost parameters are provided in the exhibit below.

Discount rate sensitivities are shown in Exhibit 24 below. Of note is the very high sensitivity of the project valuation, in particular, owing to the long length of the Elk Creek mine in absolute terms:

One final analysis shows the sensitivity of our NioCorp valuation to the assumed price at which equity finance is raised:

NioCorp had US$2.3m in cash on its balance sheet at end-FY23 and US$8.4m in net debt. In the following three months, it consumed US$2.7m in cash flows from operating activities and raised US$1.5m in equity in the form of debt conversions such that it had US$1.1m in cash at end-Q124 and US$6.0m in net debt (with a reduced convertible loan liability). Since then, it has raised a further US$1.29m via the issue of 413,432 units (each comprising one common share and one warrant exercisable into one more common shares at an exercise price of US$3.54) in December 2023, including participation from management and other designated insiders.

Apart from a small lease liability of US$0.2m, all of NioCorp’s debt is in the form of unsecured convertible debentures issued to Yorkville in March 2023 and maturing on 17 September 2024. As per NioCorp’s Q123 10-Q SEC quarterly report for the three months to September 2023, based on the company’s closing common share price of US$3.63 as of 30 September 2023, conversion of the remaining convertible debenture balance of US$6.9m, including accrued interest, would require the issue of approximately 2,448,730 common shares, implying an average conversion price of US$2.82/share (or a 22.3% discount to the share price at the time).

More significantly, over the course of the next 12 months, we would expect NioCorp to present a funding solution to investors for the development of the Elk Creek project.

NioCorp is expected to produce and sell ferro-niobium, scandium oxide and titanium dioxide products (see below) via various channels, which include entering long-term offtake contracts and letters of intent with buyers. REEs are currently not included within the mineral resource, but there is scope for this to change in the future with respect to the more widely traded REEs such as neodymium, praseodymium, terbium and dysprosium.

All of the proposed products are considered to be critical minerals by the US government, which can be defined as any metallic or non-metallic element that is essential for the functioning of modern technologies, economies or national security that carries a fundamental supply chain risk. Uses of each critical mineral are varied with applications in multiple sectors spanning defence, aerospace, low emissions technology, industrial production (such as steel) and electronics. Supply risks can occur owing to mineral production or processing being monopolised by countries or companies that have the capacity to limit availability. Other factors include social or economic issues such as market immaturity, political control, natural disasters, geological scarcity and war. Within this context, the US, in particular, has introduced an EV tax credit, contingent on an increasing content of US produced critical minerals. More broadly, as per the Inflation Reduction Act of 2022, new federal law provides for a 10% production tax credit applicable to all of NioCorp’s planned critical minerals.

A summary of NioCorp’s four principal product streams is provided below.

Historically, ferro-niobium has been used within the steel industry, owing to its ability to produce a strong and lighter product when incorporated as an alloy into the production process. Pure niobium (Nb) is often used in other special alloys, with niobium oxide also having uses as a piezoelectric material and within capacitors. More recently, its use in renewable activities (notably energy production and storage) has become apparent, opening the potential for increased demand streams.

Niobium’s criticality can be viewed from multiple perspectives. Firstly, 88% of niobium is produced in Brazil, increasing the potential for supply chain risks. However, as new uses for niobium in renewables begin to come online, demand growth is expected to increase, adding liquidity to the market. Secondly, there is a lack of available substitutes (or significant performance loss associated with substitution). Finally, there is its increasing use in modern and energy-efficient, low emission technologies.

Beyond research, scandium metal has few industrial applications, with demand, at present, being driven by its use in solid oxide fuel cells, but with a prospective future as a lightweighting alloying addition to aluminium alloys.

Once converted into an alloy, however, its uses become more diverse, as it reduces the weight and increases the strength of an equal volume of a non-blended material, such as aluminium (somewhat akin to niobium in steel). Consequently, scandium oxide is the primary form of refined scandium. Alternatively, it can also be used for its heat-resistant properties. Finally, scandium has been reported to improve various corrosion-related properties. To date, its primary use as an alloy has been in the construction of Russian MiG fighter planes.

Currently, the market for scandium is much smaller than that of the rare earths, at c 14–23 tonnes per year (metal equivalent), with most of its supply coming as a by-product of other metals. However, potential new market sectors include car and commercial aeroplanes as well as fuel cells.

A versatile mineral, titanium dioxide, in particular, is used in a number of products such as paint, sun cream and food colouring. However, titanium dioxide compounds are also being developed for use in the next generation of lithium-ion batteries, using solid-state designs that provide longer ranges in automotive applications and shorter charging times. In addition, it demonstrates photocatalytic properties, which can alter solar energy for use in oxidation and reduction activities, with practical uses from eliminating pollutants from air and water to cancer cell inactivation.

Titanium metal is often used in aircraft on account of its lightweight, high-strength nature. It also resists corrosion, making it especially useful in surgical and prosthetic implants. As with niobium and scandium, titanium is often blended into an alloy owing to its ability to achieve very high tensile properties.

For the purposes of this note, we have assumed that Elk Creek will upgrade its titanium dioxide product line to titanium tetrachloride (TiCl4), which is a precursor of titanium sponge and therefore also titanium metal. Titanium tetrachloride is a purer form of titanium than synthetic rutile and generally commands a higher market price. Features of the titanium value chain, including titanium tetrachloride, are as follows:

Titanium tetrachloride is also used in the production of high-value pearlescent pigments, catalysts, rutile ‘seed’ for producing crystalline structure titanium dioxide and piezoceramics components. The largest of these applications, pearlescent pigments, are typically used in auto and other coatings and sell for as much as US$100/kg.

REEs comprise a group of 17 metals that have become critical in defence, modern and green technologies owing to their unique magnetic, phosphorescent and catalytic properties. Chemically, scandium is not actually an REE, but a transition element. However, it is often included among the rare earths in industry parlance and this is the convention that we have adopted in this note. Reserves are currently estimated at c 130Mt, with China accounting for approximately one-third of the total (other notable countries include Brazil, Vietnam, Russia and India).

Owing to their reactivity, REEs do not typically occur as individual native metals in nature, such as gold or copper, but instead as by-products of either major or minor constituents. Boasting an abundance in a wide range of minerals, including silicates, carbonates, oxides and phosphates, REEs do not fit into most mineral structures finding themselves isolated to limited geological environments. In this case, NioCorp states that all REEs are enriched within its ore body, with current estimates suggesting that Elk Creek contains the second largest ‘indicated’ or better rare earth resource in the US.

Currently, rare earth markets are benefiting from the broader shift in decarbonisation of economic activity and global efforts to reach net-zero emissions by 2050. Certain rare earths (notably Nd/Pr/Dy/Tb) have already been affected by their adoption in permanent magnets used in EVs and wind turbines.

The development of these markets is also being driven by geopolitics, as governments are rightly wary about swapping one set of geopolitical risks for another as energy systems change. Ambitious plans to decarbonise transport and industry through policies such as net-zero by 2050 and the mandated end of internal combustion engines clearly need to be balanced with making sure the materials and supply chains can cope and new risks are not created. In the US, the Inflation Reduction Act has been focused on creating new sector value chains and large-scale end-users are beginning to seek secure, long-term sources of supply, rather than rely on global commodity trade.

REEs are a group of elements that are typically found together in nature and mined as a group. They are famously ‘not rare’ but not often found in economic concentrations. They are typically found in a broad range of mixes and mining operations typically concentrate relatively small quantities at mine site into a concentrate which then requires painstaking separation into individual rare earth compounds, typically oxides. Rare earths is a term usually attributed to the lanthanides series of elements (atomic numbers 57–70), although yttrium (atomic number 39) and scandium (atomic number 21) are also commonly considered as rare earths, on account of their occasionally coincident geological occurrence alongside the lanthanides and their relative scarcity. Despite this broad grouping, these elements have different physical properties and very different end-uses.

Rare earth markets are typically more opaque than most major commodity markets – as they are smaller, have been dominated by Chinese production in recent years and new end-uses are only beginning to open up a more normal pattern of globalised supply and demand. Nd/Pr is a far larger market, and far further down this path to transparency than scandium, where supply constraints have, to date, limited the development of key applications.

As part of its processing plan, NioCorp aims to produce ferro-niobium and, potentially, aluminium-scandium master alloys at Elk Creek to offer, among other things, a supply chain mined and created in the West.

Alloys are formed by metals such as aluminium, titanium and iron being combined with a percentage of one or more other elements or compounds (alloying agents). This alloying agent (solute) can then be added to a base mix (solvent) to obtain a desired solution of a specified metal content. The result is a material that often exhibits improved strength, corrosion resistance and/or other desirable characteristics compared with the individual elements themselves. An example of this is aluminium-scandium (AlSc) where scandium addition to aluminium produces a grain refinement in the as-cast condition, which thereby increases the mechanical properties and weldability of the alloy compared with the individual metals. Relatively little scandium (between 0.1% and 5%) is necessary for the creation of such AlSc alloys. Other alloys vary in content depending on their desired characteristics.

Master alloys are created to introduce an accurate amount of a metal into a pre-existing alloy. In comparison with the example above, a master alloy is used as an additive (alloying agent) during the alloying process to precisely control the scandium content in the final aluminium-scandium alloy. As such, AlSc can be considered to be both an alloy and master alloy depending on whether it is used as a final material with enhanced properties or an alloying agent to introduce scandium into aluminium alloys during the manufacturing process.

Both niobium and scandium are thinly traded, without well-established publicly available pricing. This is a similar issue for some of the REEs, although the magnet feed rare earths at Elk Creek (neodymium, praseodymium, terbium and dysprosium) are more widely traded and pricing may be acquired from commercial services.

Niobium is not traded in public markets; transactions generally occur directly between mine operators and downstream consumers, with trading firms occasionally acting as intermediaries.

Currently, approximately 80% of niobium is produced in Brazil, with a single company, CBMM, occupying the role of price setter. Owing to its position in the market, CBMM has significantly reduced supply disruption over the past few decades, increasing its output sufficiently to meet rising demand. However, increasing global demand for niobium could raise the possibility of future supply restrictions.

The second largest producer of niobium is Canada (c 9%), such that primary niobium-consuming countries are, to all intents and purposes, fully dependent on imports to meet domestic demand. These include the US at c 35% of consumption and China at c 15%, albeit the US is import dependent at all stages of the niobium cycle, whereas China is only import dependant for primary niobium. In addition, while most US imports of niobium are embedded within semi-finished goods that are consumed domestically, most niobium-containing goods manufactured in China are re-exported. As such, although Elk Creek’s annual ferro-niobium production of c 7.2ktpa will amount to just c 5% of the global total, its local geography could alleviate some of the potential issues pertaining to domestic supply in the US in particular.

Demand for niobium is typically in the form of ferro-niobium, which is used in the production of steel for the automotive industry (28%), construction (32%), stainless steel (14%) and pipelines for oil & gas (17%). The remaining 9% is usually used as niobium oxide in chemical applications or as pure metal in piezoelectric materials, glass and lenses, capacitors, ceramics, carbides and superconducting magnets. To the extent that emerging industries adopt the use of niobium in their transition to a low-carbon future, therefore, current demand is likely to shift in the coming years.

As previously noted, trading of niobium occurs in several forms, the most common of which is ferro-niobium, which is typically sold as steel grade (65% Nb content), as well as a higher-purity technical grade. As the market evolves and new uses in renewables for niobium begin to come online, market growth is expected to increase. CBMM market data suggest an active growth profile from 1990–2010 notably outstripping its steel counterpart and implying new uses of niobium across emerging industries. A pertinent example of this, among many others, is CBMM’s collaboration with Toshiba to develop additional applications for niobium as a component of solid-state lithium-ion EV batteries, which CBMM estimates could account for as much as 35% of consumption by 2030.

The future pricing of niobium is inevitably largely dependent on CBMM’s strategic decisions. While CBMM has the capacity to potentially oversupply the market with low-cost production, which might lead to price decreases and the displacement of competitors, historically, the company has demonstrated a willingness to cooperate with other producers and to carefully manage its production volumes to maintain price stability.

Scandium is the smallest rare earth market owing to historical supply constraints and a scarcity of high-grade deposits. It is also considered one of the most expensive elements to produce at c US$3,800–5,000/kg. However, it has a potentially wide range of new applications, particularly as an alloying additive to aluminium. Once converted into an alloy, in particular, its uses become more practical, thereby expanding its functions. As an alloy, scandium has the potential to reduce the weight and increase the strength of an equal volume of a non-blended material, such as aluminium, thereby opening potential new markets to it, such as automobiles, commercial aeroplanes and solid oxide fuel cell manufacturing. As such, there are potentially significant large-scale commercial applications where material properties and applications are maturing, but consumer commitment has arguably been held back by a lack of secure supply.

Sources for data on supply and demand for scandium are relatively thin. According to most estimates (which also rely on the USGS, or some limited private surveys), current supply and demand is in the order of 20–30tpa (oxide equivalent). This is exceptionally small in terms of global metals’ markets and is approximately 0.04% of the physical size of the Nd/Pr market (itself relatively niche). It is this current small size that contributes to its relative opacity. Current supply is dominated by China (45–52% as a by-product of rare earth mining) and Russia (c 20% as a by-product of uranium mining) and the Philippines (35%). Apart from its dependence on the demand for other primary metals, other sources of supply include that from wastes and reprocessed tailings. Demand is highly concentrated in a few users and end-uses at present – with perhaps 15–20tpa directed towards solid oxide fuel cells, of which the primary consumer is Bloom Energy. The balance of demand is in relatively small specialty alloy applications such as high-strength military alloys, specialist sporting goods (eg bicycle frames, baseball bats, lacrosse sticks) and specialty lighting applications.

Owing to its dependence on the demand for primary metals, the supply of scandium has typically been inelastic to demand, leading to price volatility. However, the market is beginning to evolve with material scandium projects now coming online. In the last three years, the Sumitomo Taganito scandium plant in the Philippines has begun operations and is currently operating at a capacity of 7.5tpa scandium oxide (albeit as a by-product of nickel laterite leachates). In addition, Rio Tinto is entering the market, aiming to produce 3–12tpa scandium oxide at its Sorel-Tracy plant in Quebec.

Assuming current trends, the global supply of scandium oxide could potentially increase to 38tpa. If all proposed projects were to be brought online by 2030, a maximum total of 1,800t per year is possible. However, based on current forecasts, the automobile industry alone could use up to 5,300tpa, suggesting that scandium oxide production would need to expand by a further 3,500tpa by 2030 to meet potential demand. By the same token, given its limited alternative (mostly academic) applications, market adoption is not guaranteed in the event that price and supply volatility dampens demand and adversely affects supply growth.

Within this context, the Elk Creek project is expected to produce scandium oxide at a rate of c 100tpa. If production commences as expected in 2026, this would outstrip the current base line demand scenario – albeit it would only represent a fraction of maximum possible demand. As such, the future of the scandium market is likely to be determined by diversifying uses of the metal driving new demand and thus supply.

The titanium dioxide market is dominated by a variety of end-uses driving its growth, including paint, pigments, sun cream, food colouring, photocatalytic-related products and the development of next-generation lithium-ion batteries. As such, it is characterised by functional liquidity with a market size of c US$19bn predicted to grow to c US$32bn by 2031 (a compound annual average growth rate of 5.7% per year, source: Straits Research).

Its geographic distribution is also more diverse, dominated by South Africa, Australia and China (as ilmenite or rutile), with the main source of reserves being in China, Australia and India. Combined, in 2021, the seven largest TiO2 producers accounted for 56% of global capacity, with 36% of production located across over 50 companies in China and the remaining 8% spread across the globe. In 2020, titanium dioxide consumption amounted to c 6.5Mtpa, of which China was the largest consumer at 40%, followed by Europe and North America at 1Mtpa (16%) apiece.

Characteristics of the titanium sponge and titanium metal markets are as follows:

The application of REEs, particularly in the production of permanent magnets for EVs, is the most critical use of rare earths. By volume, permanent magnets and catalysts represented over 60% of global REE consumption in 2019. However, in terms of value, they accounted for more than 90% of the total. NioCorp aims to set itself apart from the competition by manufacturing high-purity magnetic rare earth compounds (including a mixed Nd/Pr oxide, Tb oxide and Nd oxide) that can be directly used by the magnetic rare earth metal/alloy/magnet supply chain, reducing the need for additional processing.

REEs have experienced escalating demand in recent years, particularly in the light of the global shift towards a net-zero future. The demand for REE oxides, metals, alloys and associated materials, especially those linked to permanent rare earth magnets (neodymium, praseodymium, dysprosium and terbium), experienced a compounded annual growth rate (CAGR) of 6.4% from 2015 to 2019. According to the consensus among independent analysts, this rate of growth is anticipated to increase by approximately half to a CAGR of c 9–10% from 2023 to 2030 (source: NioCorp), driven by the increased manufacturing of EVs, wind power generators, consumer appliances, cordless power tools, etc. Within this, it is estimated that the global consumption value of magnet rare earth oxides will experience a fivefold increase by 2030, jumping from US$3.0bn in 2021 to an estimated US$15.7bn by the end of the decade. At the same time, REE supply is experiencing mounting pressure as it struggles to keep pace with rising demand, with supply shortages (especially of neodymium, praseodymium, dysprosium and terbium) anticipated during this period. In contrast to the anticipated increase in demand, global production is projected to grow at an approximate CAGR of 7% from 2021 to 2030 as the supply side struggles to keep up with rapidly burgeoning demand.

NioCorp’s expected production of the four magnetic rare earth oxides is expected to total c 635tpa. On this basis, NioCorp’s market share of supply is expected to be less than 1% of a global total of 210,000tpa in 2026.