NioCorp Developments (NB.TO) has announced the results of the Preliminary Economic Assessment it conducted on its Elk Creek Niobium project in the USA. The after-tax NPV6-9% is okay-ish at $420M-960M but there are some other developments we are rather unhappy about.
The total capital expenditure is approximately $919M which is much higher than we had anticipated. During our face to face meeting with Mark Smith in September of last year, he was expecting the capex to be roughly $600M. This $300M difference is one of the main drivers of the lower-than-expected Net Present Value and disappointing after-tax IRR of less than 14%.
The cash cost of $6.5/kg for ferroniobium is good, even great, and the used price of $44/kg increasing to $48/kg is definitely acceptable. However, we have more issues with the Scandium price the company used in the PEA. The Scandium market is an extremely small market and Elk Creek would produce more Scandium than the total global consumption right now. The company did apply a 30% haircut on the Scandium price, but we’re afraid that won’t be sufficient. Several scandium-focused companies are advancing their projects as well, and the majority of them, for instance Scandium International Mining (SCY.TO) uses a base case scandium price of $2000/kg. If we’d also apply the $2000 price on NioCorp’s Elk Creek project, the annual EBITDA would be approximately $19M lower resulting in an even longer payback period and lower NPV and IRR.
This is just a PEA and all inputs will be finetuned (and possibly improved) in an upcoming full feasibility study so the jury is still out, but based on this PEA we are a little bit underwhelmed by the economics of Elk Creek. As today’s share price is 134% higher than when we first discussed NioCorp, it would be wise to take some money off the table here, and nobody would blame you if you’d recoup your original investment.
> Click here to read the press release
Disclosure: The author holds a small long position in NioCorp. Please see our disclaimer for current positions.
