Platina Resources Ltd. saw China as the logical buyer of the ultralight metal from its Owendale scandium project in New South Wales when it committed to the project’s definitive feasibility study (DFS), completed in December 2018. But a market analysis tour the following year uncovered some tough truths about the scale and costs that would be required to develop the project, said Platina Resources Managing Director Corey Nolan.
Now Platina, whose share price is just a small fraction of its five-year peak, is selling the project to Rio Tinto Group. Nolan is happy to finalize his company’s transition into an explorer hunting 1 million-ounce gold deposits in Western Australia.
While most of the world’s scandium comes from byproduct waste streams of metals like cobalt, nickel, uranium and especially titanium, according to London research group Project Blue, Platina and others in Australia’s eastern states have high enough grade to develop assets as stand-alone projects.
S&P Global Commodity Insights: Last year, Platina looked into creating intellectual property for an aluminum-scandium master alloy after talking about “new initiatives” to advance the project in 2021. Now you’re selling it. What was the challenge in developing this asset?
Fundamentally, the challenge at the moment for the development of these [stand-alone scandium] projects is the small size of the market. For us to produce material we have to be able to have sufficient scale to generate certain economics, and that scale is substantially higher than the current size of the market.
It’s a chicken-and-egg situation: There hasn’t been a secure supply available to develop the market, and without the market then you can’t get the financing to build the projects. And it’s more complicated than that. Scandium is an expensive product to produce, and when you make an alloy it’s got to compete with other alloys, and there are a lot of alloy products in the market — many that are substantially cheaper than scandium and can do good jobs in their own right.
[Platina] committed [to the DFS] on the basis that the Chinese were going to be the likely buyers of the material. We finished [the DFS] then ventured into the world to try to find off-takers. It took us a year to realize … the Chinese buyers weren’t big enough nor financially capable of underwriting this project, the aluminum guys in general weren’t interested, and the alloy segment in the market is extremely diverse. It’s generally private and very difficult to tap into.
After our trips, we thought our ability to sell scandium oxide as a product was going to be pretty limited, and that you actually had to produce a master alloy product if you want any chance of developing the project long-term.
That’s why we embarked on the program to start developing [intellectual property] around making alloy, and at one point we suggested looking at a strategy of completing the IP to make a master alloy, but essentially buying third-party scandium oxide until there was sufficient scale in the market to develop our project in its own right.
I was setting that up as a precursor to spinning out [the scandium project] so we could go down a gold route, but we had a couple of buyers come along to do due diligence, and after a period of time we landed on the sale process with Rio Tinto.
It really takes someone with a big balance sheet, long-term horizons and who can produce material — which Rio Tinto can do from Quebec — to make aluminum alloys with scandium and put samples with customers who can test materials and develop products. That’s a long-term strategy, and it’s not a path I wanted to take Platina down anymore, unless we spent 10 or 20 years trying to develop the market. That’s the reason I’m exiting the [scandium] business.
Could Rio Tinto’s deal open the eyes of the airline industry to use scandium more?
Rio Tinto is in the thick of it because they are making master alloy from scandium oxide in Quebec, putting it in the market and testing it with customers. Rio Tinto does not want to take scandium as a byproduct but from a pure-play scandium project, and we probably have the best one in the world in terms of grade and economics. So they’ve decided to lock that up so if the market does grow big enough they can supply it from a pure-play source.
The airline industry is a tough one to break into because you’ve got to compete with aluminum-lithium alloys that are substantially cheaper, and the certification process — designing components then getting them certified for aircraft — is a long and painful journey, and I don’t think that’s the logical big market.
What is the logical big market?
It’s got to be markets where customers are less sensitive to price, who are looking for a superior quality alloy and are prepared to pay a superior price for it. Say an aluminum-rim tire on a Porsche or Lamborghini or maybe certain military applications where [scandium buyers] are happy to get a particular benefit that isn’t purely about price.
I’ve always been a fan of the idea of using scandium in marine applications. There’s a big market there to harden your aluminum and get the benefits that are derived from welding it together. So it would be good for both commercial and navy-type operations.
Source: S&P Global