MarketEye: Tantalum Supply Chain Faces Unprecedented Challenges

Largest Tantalum Ore Source to Close in December 2008

On Nov. 26, 2008, one of the most important hard rock mines for tantalum ore in the world, the Wodgina mine in Australia announced they would stop all shipments of tantalite to the global market by mid-December 2008. Mining has been conducted at Wodgina since 1904, initially for tin and later for tantalum. The present tantalum mine was established in 1989 and expanded accordingly as the global electronics industry grew. The closing of the mine represents a major dislocation in the tantalum supply chain and has created unprecedented challenges in the history of tantalum supply to the global capacitor industry. This closing also affects other important industries such as superalloys, cemented carbide cutting tools, optical coatings, and a variety of wear parts. The impact for the production of computers, handsets, automotive electronic subassemblies, medical implants, aircraft, defense, mining and oil well electronics should not be underestimated or misunderstood.

In 2008 the Wodgina tantalite mine in Australia, owned and operated by Talison Minerals of Perth (formerly Sons of Gwalia), supplied 30% of the global supply of tantalum ore. The shuddering of a resource with such a large share of global supply of a rare-earth mineral poses new challenges for the $2 billion tantalum capacitor industry.

Reasons for the Closing of the Wodgina Mine

According to a Nov. 26 2008 press release, “Talison’s actions are driven by two factors. Most importantly, the recent global financial crisis has seen a severe downturn in worldwide demand for consumer electronics, resulting in lower demand for tantalum. As a consequence, Talison’s customers have sufficient tantalum for the near future and have not needed to extend their current contracts. The second factor is a long-term and increasing trend to reduce material costs in the electronics supply chain, which strongly encourages increased tantalum supply from Central Africa, and particularly from the Democratic Republic of Congo (DRC). Tantalum from Central Africa is available at relatively low prices because it is often mined illegally or without regard and commitment to health, safety, environment and labor conditions and frequently transported in contravention of international regulations. Revenue from tantalum mining activities in the DRC is reportedly used to fund militias involved in the ongoing civil war in the north east of the Country, with little financial benefit flowing to the local people.”

Talison Minerals’ Chief Executive Peter Robinson said it was extremely disappointing to be suspending operations at Wodgina due to economic conditions and industry activities beyond the Company’s influence. “Historically, Talison has provided a large, reliable supply source that has underpinned the entire tantalum industry. We have the capacity and the desire to continue in this role and we believe it is in the electronics industry’s interests for Talison to play a significant part in its future,” he said.

“Our goal is to bring Wodgina back into production as soon as the global economic situation improves and demand and prices are stronger. Until then we will keep working with the electronics industry to encourage all participants in the supply chain to purchase tantalum from responsible sources and to assist in establishing a system that will give consumers confidence that tantalum is being produced in compliance with internationally recognized social, legal, ethical, safety and environmental standards.” “Without Talison’s supply the majority of the world’s tantalum will come from irregular and unreliable suppliers from politically unstable regions, with much of it coming from the DRC,” Mr. Robinson said.

Alternatives to Wodgina are Limited

Tantalum capacitor manufacturers have a limited supply chain. The number of reliable mines producing tantalum on a consistent basis has been seriously limited since 2001 because of a moratorium on mining in the Congo (due to the scathing United Nations report United Nations’ Security Council Document [S/2001/357] “Final Report of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo” that showed tantalum receipts were being used to fund civil war in the region). Remaining mines in Brazil, Canada, and China are small, and cannot be scaled up in time to meet increased demand that would be created by the shuddering of Talison’s Wodgina mine. Additionally, the U.S. Defense Logistics Agency, which had historically supplied hundreds of thousands of pounds of surplus tantalum ores and concentrates to the commercial market exhausted its captive supply in 2007. This has created a vacuum in the market that will now be compounded by the closing of the Wodgina mine in Australia (The Wodgina mine supplied 1.3 million pounds of tantalum ore in 2008, or 30% of the primary mine output, and 21% of the global supply).

Note: About 53% of tantalite is mined from the ground. This equates to approximately 3.1 million pounds for CY 2007. The remainder of the 5.8 million pounds of demand is satisfied through secondary sources, such as from recycled material (20%), supply chain inventories (16%), the tailings from tin slags (8%) and from the United States Defense Logistics Agency (3%). The Defense Logistics Agency exhausted its supply of tantalum in 2007 under direction from the U.S. Congress.
Source: Tantalum: Global Market Outlook: 2008-2013; Paumanok Publications, Inc.

Note: Of the 3.1 million pounds that was pulsed from the ground in 2007, about 32% was sourced to the Wodgina mine in Australia. The closing of this mine poses significant challenges for the $2 billion global tantalum capacitor industry.
Source: Tantalum: Global Market Outlook: 2008-2013; Paumanok Publications, Inc.

Key Tantalum Mining Operations: 2008-07-08

The world’s largest producer of tantalum is Talison Minerals comprised of two mines in Western Australia that collectively contain 65% of the world’s defined tantalum reserves and have the combined capacity to supply 2.3 million pounds (mlb) of tantalum to the market. However, Talison only supplied 1.0mlb of tantalite in 2007 according to a Talison company presentation. The last reported reserve and resource forecast for Sons of Gwalia (the former Talison entity) prior to entering voluntary administration was made at the end of the company’s 2003 fiscal year. Proven and probable reserves at that time were 108.2mlb of contained tantalite, equivalent to almost 50 years’ production, with an additional resource of 104.2mlb. An additional 6.6mlb of resource at the Wodgina mine location was reported in the June 2004 production report. The closing of these two mines (first Greenbushes and now Wodgina) pose unprecedented challenges for companies that reply on tantalum capacitors, superalloys, cutting tools, optical coatings and wear parts.

Sons of Gwalia called in voluntary administrators on Aug. 30, 2004 as a result of the deterioration of gold reserves and resources at its gold mining subsidiary that raised serious concerns about the company’s ability to meet its gold hedge book requirements. In its report to dated Nov, 24, 2006, Ferrier Hodgson, the voluntary administrators, noted that Sons of Gwalia’s Minerals division (tantalite and lithium) had negative EBIT in the period Aug. 23, 2004 to the year ending June 30, 2006, and negative cash flows in the 15 months ending Oct. 1, 2006. This poor performance was a result of a (1) rapid increase in mining industry costs in Western Australia and (2) lower ore grades and metallurgical recoveries from the two mines it operated at the time (Wodgina and Greenbushes).

The Greenbushes Mine:

Subsequently, the Greenbushes mine was placed on “care-and-maintenance” and the 1mlb of tantalum ore coming from the mine to the market ceased. This placed a great amount of significance on the Wodgina mine, which remained operational, but still required its tantalite to be transferred more than 1,000 kilometers to Greenbushes to be processed.

The Greenbushes mine, in southwestern area of Western Australia (located 210 kilometers South of Perth), contains the largest tantalum resource in the world. The mine has an estimated 1 million pounds per year of open-pit tantalum concentrate capacity and a further estimated 500,000 pounds per year of underground capacity. However, at present both the open-pit and underground tantalum operations at Greenbushes are on care-and-maintenance as a result of high operating costs. Spodumene (a lithium ore) is still being produced in the open-cut portion of the mine.

The Wodgina Mine:

The Wodgina mine, in northern Western Australia (located 120 km south of Port Hedland, Australia), contains the world’s second-largest tantalum resource, The mine has the capacity to produce 1.3 to 1.4mlbpa of Ta2O5 and is currently the world’s largest producing mine (following the suspension of operations at Greenbushes), with output currently at 1.0mlb per year according to Talison. Wodgina has, however, suffered from higher operating costs (a problem throughout the global mining industry, but more specifically in Western Australia). The closing of the Wodgina mine now shifts interest away from Australia toward resources that are either too small to accommodate the deficit in regions where it is considered unethical to mine or in politically unstable regions of the world.

Brazilian Production:

Most of Paranapanema’s historical output has been derived from the Pitinga tin mine. As a result of declining reserves and depletion of softer weathered ore, production switched to the processing of tailings and imported feedstock. However, the company started production at the new hard-rock Rocha Sã mine at Pitinga in early 2006, and this is expected to maintain tin production at the 7,000 tons to 8,000 tons per year level, with future plans to expand this to 12,000 tons. Initial tantalite production levels are expected to be around 350,000 pounds when at full capacity, and with further expansion and artisanal purchases sales could reach around 500,000lb by 2009. Ultimately the company has plans to expand output from the hard rock mine to 1mlb. The assumption is this target will not be reached by 2010. Paranapanema should benefit from the closing of the Wodgina mine by Talison because 1) they had already begun expansion of their operations before Wodgina closed, and 2) they are in a stable region of the world.

Companhia Industrial Fluminense is located in the city of São João del Rei and is a subsidiary of the private AMG-Metallurg metals group and operates the Nazareno mine. The mine had a design capacity of an estimated 100,000 pounds but has been producing at significantly less than this (around 20t in 2003). We understand there are strong rumors that production from the mine may have been ramped up more recently, potentially to around the 150,000lbpa level. Fluminense also buys concentrates from artisanal miners and imports concentrates too. We estimate that total company sales of tantalum pentoxide were approximately at the 150,000lb level in 2007, rising to 300,000 pounds in 2009, as the company has announced it will double output at the mine. AMG should also do well in the near term as the company’s expansion was well underway before the closing of Wodgina because the operations are in a stable region of the world.

African Mining

The Kenticha mine in Ethiopia has been the principal hard-rock producer in Africa for a number of years, with output estimated at around 135,000 pounds of tantalum pentoxide in 2007. We are also aware of claims that Kenticha may already be producing at the 165,000-pound level in 2008. It is thought that the mine has the potential to be expanded to the 240,000-pound level by 2013. Kenticha is believed by Paumanok to be the lowest cost tantalite mining operation in the world. Kenticha is also known to sell 100% of its tantalum under contract, and these contracts are written well in advance.

There are numerous other modest producers in Africa, many of whom are artisanal, and therefore very sensitive to price movements in tantalite as well as geopolitical developments on the continent. The majority of these are in Central Africa, and the production is primarily from placer deposits and coltan (containing 10-40% tantalite). In total we estimate 2007 central African production of around 305,000lb of tantalite, (primarily the DRC and Rwanda, although the Rwandan tantalite also comes from the Lake Kivu region from the Congo). Artisan production during the global shortage in 2000 from the Congo may have been as high as 1.5mlb, filling much of the apparent supply shortfall. In 2007, and based upon U.N. global trade data, it is apparent that only China is sourcing tantalite from the Congo and Rwanda and that Cabot Corporation (USA, Japan) and HC Starck (Germany, Thailand, Japan) are NOT sourcing Coltan from the Congo and they have both stated they will not source this location if or when shortages arise in 2009 as a result of the closing of Wodgina mine. However, it should be noted that in the first half of 2008 trade statistics show tantalite (or Coltan) shipments from the Congo at approximately 485,000 pounds, which is a 60% increase in shipment volumes from the first half of 2007. Once again, this material is being shipped almost exclusively to China.

antalite from Nigeria has been consistently on the global market for more than 20 years. Tantalite mining is largely accomplished by artisans who dig by hand or pan in the local streams. Most recovery occurs during the planting season and in conjunction with farming activities. The minerals are collected at specific processing locations (one is run by Mekios Mining Limited (2007) who operates in conjunction with Nigeria’s Ministry of Solid Mineral Development) and then sieved to a specific grain size and then passed through a magnetic or electrostatic separator. According to U.N. trade data, Nigeria supplied 201,000 pounds of tantalite to the global market in 2007 and because of low costs to produce and largely untapped resources (such as in the Bishewa area), Nigeria will become a more important supplier of tantalite to the global market between 2008 and 2013.

Noventa (HAMC Limited) has just brought the Marropino mine back into production. Noventa also intends to develop the Morrua mine, with production commencing in 2008. U.N. trade statistics suggest that Noventa sold tantalite from the Marropino mine to U.S. processors in 2008. Also, another company, Pacific Wildcat Resources, purchased mining rights from Tantalum Mineracao e Prospeccao Limitada ("TMP"), a Mozambican company that owns certain mining leases and related assets in Mozambique. These leases represent locations that are situated in northeastern Mozambique along a band of pegmatite rocks, which have historically been the subject of tantalum production and exploration.

China Production:

Over the last few years, Yichun, located in Jiangxi province, has been China’s largest primary source of tantalite. Yichun produces around 100-120,000lb annually and historically has made up around half of China’s total output. The Yichun mine, (like Greenbushes) is also a major source of lithium. Significant capital resources are required to expand the Yichun mine.

The underground Nanping mine, in Fujian province, is partly owned by one of China’s largest tantalite consumers, Ningxia Non-ferrous Metals Smeltery, which takes all the output. The mine started production in 2000 at around 100,000lbpa Ta2O5, but is thought to have closed down soon after before being quickly reopened. Paumanok estimates a current production rate of around 170,000 pounds per year for 2008.

Southeast Asia and India:

There are a large number of small producers in both Malaysia and Thailand that mine tantalum minerals, in the form of strüverite and as a by-product of tin mining. Tantalum is also recovered from the reprocessing of low-grade tin slags. In 2007 there was a rapid increase in tantalum activity in Thailand, and we expect additional tantalum mining activity in Thailand in 2009 with the closing of the Wodgina mine in Australia. In addition to the renewed activity in Thailand, in 2008 we note additional activities in Singapore, Vietnam and the Democratic Republic (North) of Korea, producing what is believed to be low-grade tantalum from placer mining for tin. There is also some new activity in India in the tantalum supply chain that includes the recovery of tantalum from slag, and the processing of tantalum into metallurgical grade and capacitor grade powder on a pilot scale in 2008.

North American Production:

There are a large number of carbonatites and pegmatite deposits in Canada that contain tantalite, but only one, Bernic Lake in Manitoba, that is currently in production. The deposit is mined by Tantalum Mining Corp. of Canada (TANCO), a wholly-owned subsidiary of one of the intermediate processors, Cabot. The mine produced an estimated 140,000 pounds in 2007 and we are assuming that production of around 150,000 pounds of tantalite can be maintained until 2013 when it is expected that current reserves will be near-exhausted.

Russia and Kazakhstan Production

Limited data is available on the production of tantalum in Russia and Kazakhstan. In Russia, most production is thought to come from the Solikamsk Magnesium Works, while Kazakhstan’s largest producer is the Ulba Metallurgical Works. Overall we believe that production from these two countries is estimated by Paumanok to be about 110,000 pounds for 2008 and growing. The material is processed into powder and wire by NAC Kazatomprom who reportedly has excellent quality and already supplying the capacitor industry with processed material in Europe.

The New Mega-Projects To Extract Tantalum

Gippsland (Australian Stock Exchange listed junior explorer) and the Egyptian government each have a 50% stake in the Abu Dabbab tantalum deposit in Egypt’s Central Eastern Desert (also containing feldspar and tin). The deposit is large and has the capability to become the world’s second largest active mine after Wodgina on an annual output basis. Production is expected to exceed 650,000lb tantalite annually when at full output achieved in 2012/2013 (Estimated). 100% of the first year’s output is already been assigned to HC Starck. Many capacitor manufacturers are relying on the timely opening of Abu Dabbab, especially now that Wodgina has closed.

Tertiary Minerals (AIM listed) was awarded a 5-year exploration license in January 2002 on the Ghurayyah deposit in Saudi Arabia, which was first discovered in 1978. To 750 feet in depth, the Ghurayyah deposit has an estimated resource of 205 million pounds of Ta2O5. Tertiary claims that this resource is larger than the combined known reserves/resources at Talison’s Greenbushes and Wodgina mines. The mine is forecast to produce 600,000 pounds per year of Ta2O5. The costs estimated to get this mine operational are estimated about $100 million USD.

Secondary sources of tantalum

Synthetic concentrates are reprocessed secondary materials containing tantalum. They are prepared from the processing of scrap, residues and sludges and the pyrometallurgical treatment of tin slags containing tantalum into a product containing 70-90% tantalum content. HC Starck maintains large scale capabilities to produce synthetic concentrates of tantalum at their German operations. Tantalite processors then use this product in a similar fashion to normal tantalum concentrates, hence the term synthetic concentrates. We estimate that production will remain relatively stable, around the 450,000 pound to 500,000-pound level going forward, but may be enhanced now that Wodgina has closed. However, it should be noted that feedstock is needed to create the SynCon materials.

The “Stockpile Report to the Congress – Fiscal Year 2005” US Defense National Stockpile Center (DNSC) announced it would sell 500,000 pounds of tantalum minerals in both the 2005 and 2006 fiscal years, as well as any additional tantalum carbide powder, tantalum ingots, capacitor grade metal powder and tantalum oxide to exhaust its tantalum stockpile by the fourth quarter of 2006. A press release dated Dec. 7, 2006 confirmed that 113,970 pounds of tantalum minerals were sold in November 2006 and that this depleted the Defense Logistics Agency stockpile (100% exhausted). Paumanok notes evidence of some of this material coming into the market in 2007 at strategic times, but it has probably been consumed 100% by 2008. The reader should note that the loss of the DLA as a reliable vendor of material to the market is of extreme significance, as it creates a vacuum in the market. The loss of the DLA as a supplier, coupled with the closing of the Wodgina mine, enhances the potential for a deficit to develop in the supply chain in the short term.

We estimate that recycled tantalum accounts for about 1.2 million pounds of material coming back into the supply chain. We estimate scrap supply will grow through 2011 as it becomes more important to the industry as a method of filling in gaps created by lost vendors (i.e. Greenbushes, DLA). The majority of scrap comes from the reprocessing of capacitors (whereas during tantalum capacitor production the parts that are rejected are captured and sold back to the intermediate processors- and more significantly, the lead wire attachment that is broken off during the lead attach process is recaptured), and the balance primarily comes from the recycling of cutting tools.

This would include a substantial amount of tantalum materials in various forms stockpiled in the supply chain. This includes tantalum ores and concentrates stored at Cabot Corporation, HC Starck and Ningxia NFM; as well as capacitor grade tantalum metal powder and wire stored at the capacitor manufacturers (AVX, KEMET, Vishay, NEC, etc.,). According to interviews performed for this report the consensus is that 18 months of material is available in the supply chain and will be “taken down” as needed to offset loss of supply from Wodgina in the supply chain. The majority of inventory is believed to be in the form of capacitor grade powder, which is left over from the Cabot “Take or Pay” contracts that were initiated in the 2000 and 2001 CY years.

Summary and Conclusions:

1. The closing of the Wodgina mine as announced on Nov. 26, 2008, coupled with the previous closing of the Greenbushes mine, and the exhaustion of tantalum resources at the United States Defense Logistics Agency, has created an unprecedented challenge for the $2 billion global tantalum capacitor industry.
2. Even though the trade statistics support a large-scale increase in exports from the Democratic Republic of the Congo to satisfy this shortfall, the major processors, including Cabot Corporation and H.C. Starck are adamant about NOT sourcing from the central Africa region and violating UN sanctions. The majority of tantalum ore from the Congo is going to China.
3. Global demand for ore will now switch to Brazil, Canada and Mozambique in an attempt to satisfy the shortfall, but the resources in these locations are not large enough to satisfy the loss of Wodgina from the supply chain.
4. Vendors in the supply chain will continue to draw down inventories to make up any shortfalls, although the stockpiles of tantalum powder and wire will differ from company to company, with some capacitor manufacturers for example reporting as little as three months supply and others stating they have at least two years supply.
5. Greater pressure will be placed on the Mega-Projects in Egypt and Saudi Arabia to step up their conversion process from resources to producing mines.
6. OEMs in the electronics industry will search for alternatives to tantalum capacitors, primarily in solid polymer aluminum, high capacitance MLCC and niobium oxide type capacitors; but in certain instances, only tantalum will suffice, especially in certain computer, automotive, medical, mining and defense electronics applications where the combination of ultra-small size and extremely high capacitance is required for the circuit.
7. For further information on the tantalum supply chain, please read Tantalum: Global Market Outlook: 2008-2013, available at www.paumanokgroup.com