Have you ever heard of the metal, beryllium?
I don’t think I had until a few weeks ago.
It’s extremely light, extremely useful and, as I’ve been discovering, it’s an extremely important strategic metal.
So today, I want to take a look at the beryllium story.
Beryllium – an unusually useful metal
The first thing that strikes you when you hold a piece of beryllium is how light it is. Its steely-grey metallic colour and obvious hardness means you expect something a lot heavier. But a beryllium bar feels almost as light as a piece of balsa wood. Indeed, it’s the second-lightest of all metals (after lithium).
Looking at 2010 sales revenues, more than 50% of beryllium use is in computer and telecommunications products. But it has plenty of other uses.
As well as being light, its hardness and strength, its high melting point (1,287 °C) and high temperature stability make it an ideal aerospace material. It is used throughout the industry. Applications include high-speed aircraft, missiles, communication satellites and space vehicles. The Hubble space telescope, for example, has a substructure made of beryllium.
It has other unique qualities – it doesn’t spark, it’s a good heat moderator, it acts as a hardening agent and it’s a good conductor of sound. So you’ll find it in anything from precision instrumentation, to acoustic technology, to the nuclear industry.
World resources of beryllium in known deposits are estimated at around 80,000 tons. And this is one niche metal whose supply is not controlled by China. 90% or so of mined beryllium comes from the US, which has about 65% of deposits, mainly in Utah and Alaska. Kazakhstan is the other main supplier.
If there is a choke point, it’s not so much the metal’s rarity as the processing capacity. There are only two processors in the world – one in the US, the other in Kazakhstan
The market is quite opaque – there’s no actual spot market, so it’s hard to find out prices. But according to one source, beryllium prices have increased from $128 per pound in 2006 to $230 per pound in 2010. Compared to most metals, I’d say that’s fairly modest.
The best way to play the beryllium story
There are not many pure plays on beryllium out there. Brush Wellman, now called Materion, is the US’s largest beryllium producer. I like the look of the chart, but it has other non-beryllium strings to its bow. There is also BE Resources (BER.V) a beryllium explorer, which has one heck of a volatile chart.
And there is IBC Consolidated Advanced Alloys (IB.V). I watched this company present at Objective Capital’s recent Rare and Strategic Metals Conference. I’m a bit of a sucker for technology stories. And I must say I am quite taken with this company.
Trading on the TSX Venture Exchange, with a market cap just over C$30 million, IBC has a three-pronged approach to beryllium.
First, there is the mineral resources arm. It has several mining properties it is exploring and developing in Utah, Colorado and also further south in Brazil. The most exciting is the 7,500 acres it has staked next to the world’s largest operating mine in Utah. Recent soil sampling showed visible beryllium. Drilling is expected to start in June. The hope is that the mineral structures from next door stretch into their property.
Second there is the manufacturing arm. The company already has around C$20m of revenue, mainly from sales of its beryllium-copper alloy and its proprietary beryllium-aluminium alloy. For now there is more revenue from the copper alloy. But the greater potential is believed to lie in the aluminium alloy.
IBC is finding more and more uses for it, particularly to replace plastics, steel and aluminium in aerospace. Indeed IBC has just signed a contract with the US Air Force to develop the alloy. If all goes well with development, then comes the prototype phase and – maybe one day – full scale production.
Beryllium is currently viewed as a $2bn market. IBC is not only looking to increase its share of that market, but to make the market bigger by finding more and more new uses for the metal.
How beryllium could solve the nuclear industry’s problems
Which brings me to IBC’s third arm: beryllium research and development (R&D). Of its R&D initiatives, IBC is particularly excited about some research which began and continues in Purdue and Texas A&M Universities. IBC owns the exclusive rights to license the intellectual property.
The research has found that if you add 5% beryllium oxide to uranium oxide you improve thermal conductivity of the fuel in a nuclear power station without affecting power output.
What does that mean? Well, if a reactor needs to be shut down – as in Japan recently – then with beryllium oxide-enhanced nuclear fuel, the assembly would cool down much more quickly, so improving the safety margins.
In other words, IBC thinks it has the silver bullet the nuclear industry needs. Global Nuclear Fuel – a joint venture between GE, Hitachi and Toshiba – has an unofficial partnership with IBC to develop this R&D work.
(None of this changes my view on uranium stocks by the way: The bull market in uranium is over.)
So IBC is one of the only rare metals companies that produces the product, has defined its consumer and has revenues. All in all, I’d say it has the potential to develop into a sector-dominating company, from mining right through to market. And, with a modest market cap of C$30m, there is a lot of room to grow.
But at this stage of course, it is still potential. This is a high risk play, so due your due diligence.
Looking at the chart over the last two years, there seems to be a nice floor just above 10c, with resistance at 20c. An uptrend has developed since late November. At 16c, we are now trading in the middle of that range.
I do own stock in this company. In fact, I must confess, in a fit of excitement I bought several cents higher than where we are today.
As always with small caps, the price can be volatile. So, I recommend looking at a chart, deciding on a price you are happy to pay, and then patiently accumulating. Let the price come to you, rather than rushing in hammers and tongs.
Oh, and you’ve probably already seen it mentioned in previous Money Mornings this week, but I’ll be speaking at the MoneyWeek conference. It’ll be taking place in central London (at a venue to be confirmed) on Friday 17 June – mark it down in your diary.
Category: Market updates