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Profit from the huge rise in the price of this rare metal
The price of the rare metal antimony has almost doubled since last autumn. And there's no sign of it coming down. That's great news for the few companies in this tiny market. Here, Tom Bulford looks at one small-cap miner that could strike it rich.
Antimony is not a glamorous metal. Silver-grey in colour, its main use is as a fire retardant in things such as toys and plane seat covers. Until a few months ago, it was largely unheard of.
But last week a comment in the annual results from Tri-Star Resources (LON:TSTR) revealed a stunning fact about antimony. Since autumn last year, this rare metal has soared from $9,000/t to $16,600/t today.
According to director Vehbi Eyi, "there has been considerable speculation that China has, apart from applying export quotas on antimony and antimony products, actually commenced a programme of strategic stockpile accumulation".
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The matter is simply put by the United States Antimony Corporation: "The Chinese control 92% of the world market", it says. "Their production is down and their consumption is up."
And so the Chinese have brought about a sudden and shocking supply crunch in the metal. The price of antimony has gone into the stratosphere. And it's likely to stay there for some time - great news for the few penny shares in this tiny market.
Why the EU has issued a stark warning on antimony
In truth though, antimony has been doing pretty well for the last decade. From around $1,400/t in 2000 the price moved steadily upwards to $6300/t in 2008. Even the financial crisis succeeded in knocking it to no lower than $5,500/t.
Antimony is scarcer than most rare earth elements. Demand for the metal has been growing at 5%-7% per year with some 35% going into fire retardants, with other important end markets being batteries, ceramics and glass. Antimony was one of the critical raw materials singled out by the EU as being of "high economic importance" due to the lack of substitutes and low recycling rates; and of "high relative supply risk", owing to the fact that the bulk of the world's known reserves are located in China.
The latest surge was the result of a ban placed by the Chinese Government on exploration for rare earths, tungsten and antimony and on the opening of new mines. Whether China is motivated by a wish to protect the environment, as it claims, or the desire to hoard precious supplies these latest developments have justified the warnings made by the EU last year.
The US Geological Survey says that there are only sufficient known reserves to cover ten years of demand (vs. 34 years for copper, for example) and with most of these limited reserves in China, the supply outlook for the rest of the world is precarious.
How Tri-Star could strike it rich in the Turkish mountains
Striving to fill the supply gap and take advantage of sky-high prices is Tri-Star Resources (TSTR). This penny share company emerged last August when the privately held Turkish exploration company Tri-Star was reversed into a defunct AIM listed company called Canisp, but it has received little attention so far.
Tri-Star's exploration and mining licences cover c.800 hectares of forested and rugged mountain terrain in western Turkey, a country that is keen to promote its mining industry. The focus is on the Goynuk mine which has been intermittently worked by artisanal producers for the last 100 years. The mine appears to be rich in antimony and a related metal, arsenic, but despite the scratchings of the artisanal workers it has never been properly explored. Tri-Star believes that it could be economically viable as an open pit mine, and has the possibility of good mineralisation at depth.
Last year Tri-Star started to define Goynuk's true potential. In conjunction with surface mapping it took samples from the surface and from twenty drill holes and sent these for analysis in Canada. The results were reported in February and were good enough to convince Tri-Star that the mine could become commercially viable.
It also now has sufficient evidence, gathered from three locations, to make a preliminary resource estimate. The first location, an extension of the ore body previously mined underground, contains estimated mineralisation of 210,000 tonnes at a grade of 5% antimony. Next is a location in the upper portion of mined area, thought most suitable for an open pit operation. Here the estimate is of 160,000 tonnes at an average grade of 4%. The third target is the tailings dumps from previous mining. Although inconsistent and hard to sample, they are estimated to contain 80,000 tonnes grading 2% antimony.
Adding all this together gives 450,000 tonnes at an average grade of little over 4%. That would produce 18,500 tonnes of antimony, worth about $288m (£175m) at today's prices.
First though, Tri-Star must further define the resource. It must then design, build and pay for the mine, and what the price of antimony might be if and when it finally comes into production is anybody's guess. For the time being the £50m stock market valuation of this penny share stock looks high enough.
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This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.
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Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International, he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund.
