Initiation of Coverage on Globe Metals and Mining (ASX: GBE)


January 30, 2024
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Globe Metals and Mining Limited (ASX: GBE) is an Australian-listed, African-focused resource company. Its major project is the Kanyika Niobium Project in Malawi, where it plans to produce niobium and tantalum products for high-strength, low-alloy steel and electronic applications, including very fast charging lithium-ion batteries.

Our valuation of the company as a whole, based on assumed prices of US$42/kg niobium pentoxide and US$350/kg tantalum pentoxide, together with an exchange rate of AUD/USD 0.66, is estimated to be A$444M as at June 2024 – or A$0.657/sh before dilution. Our valuation range after estimated dilution is A$0.15/sh to A$0.362/sh. The lower end of the range assumes the raising of A$100M at 3cps, and the upper end assumes an issue at 14cps. Any funding from non equity sources would reduce dilution.

The Kanyika Niobium project represents a well-studied project that Globe has worked on for over a decade, waiting for the granting of the Mining License. It had the Resource, costings and flowsheet for a mine, concentrator and refinery in 2013. Potential investors would ask why this project hasn’t been built yet and has anything changed to make it more likely to be built now. There have been four big changes over the last two years.

Change 1: Mining Development Agreement was granted on 29 March 2023. The Mining License was granted on 19 August 2021 and was effective from 1 September 2021.

Change 2: The niobium pentoxide market has different dynamics from the ferroniobium market. The niobium market is controlled by CBMM in Brazil, which supplies around 70% of global niobium demand and has maintained a flat ferroniobium price for over a decade by adjusting supply rather than price. However, in the last two years, the niobium pentoxide price has exhibited considerable volatility and its premium over ferroniobium has increased. This means the CBMM has less control over the 18% of the market that needs the oxide, and there are supply shortages from time to time, creating the opportunity for new entrants. The oxide is the feedstock for new applications outside the steel industry like niobium oxide anodes in lithium-ion batteries allowing full recharge in 10 minutes.

Change 3a: The 2023 project rework has produced a very low-cost operation. To the extent that we can see competitor operating costs, they appear to be between US$20/kg and US$30/kg for ferroniobium, and more for niobium pentoxide, which is typically made from ferroniobium. The Kanyika project plans to produce pentoxide directly from concentrate at a cost of around US$10/kg after byproduct credits. At that cost Globe has a place in global supply.

Change 3b: Refinery switch in location and process. The 2021 Feasibility Study assumed a hydroflouric process in the UAE and this has changed to a carbo-chloride process in Namibia, which has resulted in major operating cost savings and a lot more byproducts that contribute to lower operating costs net of byproduct revenue, and creating potential for a secondary business processing low-grade niobium concentrates from African copper mines currently going to tails.

Change 4: Resizing the project to make funding possible. The 2021 Feasibility Study planned to process 1.5Mtpa ore. Globe is planning a Phase 1 processing 190ktpa costing US$60M and is considering a smaller Phase 0 of 95kpta, but has released no details. The investment returns on these smaller projects appear attractive, but more clarity is needed. News flow on these changes in the near term.

2024 is likely to be a watershed year for the project and the news flow will be considerable. A Revised Preliminary Feasibility Study with updated costings and including results of detailed design of long lead items is planned for the March 2024 quarter. Product samples are currently being sent to potential off-take partners, which could lead to the announcement of sales agreements and possibly funding support (ie customers providing equity, making prepayments against future sales, and/or providing debt).