Tantalum an overlooked resource with rising prices.
[Editor’s note: The following article first appeared as an entry to the Stockhouse blog Bottom Blog on September 17. To view the original entry, click here.]
It has been a brutal two months for commodity investors. When pricesovershot on the upside in June, I suspected we would see a typicalcorrection. However, the correction was combined with an unprecedentedunraveling of the U.S. financial system, wreaking havoc on everyportfolio across the continent and overseas. Forced selling,de-leveraging, margin calls, stop loss after stop loss, all snowballedtogether to create a financial storm of epic proportion - a truecatastrophe!
However, we must be clear on one fact - underlying fundamentals in thecommodity market are intact and healthy. Fear and forced selling arethe underlying factors driving the entire market in a downward spiral,which at this point is difficult to stem.
In the same light, once the fear and forced selling ebb, fundamentalswill once again draw bottom fishing investors back towardcommodities. The Fed is taking emergency measures to stave off acomplete financial meltdown, but in the process is creating a massivedilution in the dollar and putting a tremendous strain on the U.S.taxpayer. When the dust settles, the U.S. dollar will have to resumeits natural slide, and investors will take flight to safety in thehaven of cold, hard metals.
Interestingly enough, as popular commodities such as gold, silver andoil have gotten hammered, the tightly controlled market of tantalum(Ta205) has been on a tear. Global fundamentals have driven this rareearth metal into a position of strength, as demand continues tooutstrip supply - Ta205 is used in every microchip, cell phone,airplane, automobile and most medical devices. There is no open marketspot price, the price is negotiated from contract to contract, thus themetal is immune to speculative manipulation. It is a pure price basedon current supply and demand. And the fundamentals have never lookedbetter.
Dr. Heumuller, CEO of H.C. Starck, one of the world’s leadingprocessors of Ta205, just announced a significant increase in the priceof tantalum. Quoted from a recent interview: “These are adjustmentsthat may even reach high double-digit percentages in some of our mainproduct segments,” said Dr. Heumüller, CEO of the German parentcompany, in a recent interview. “We are working closely with ourcustomers to look for ways to pass on these rising costs and the thusinevitable price increases in the entire added value chain.”
He goes on to say “we will have a massive price increase in the case of tantalum.”
Enter Commerce Resources Corp. (TSX: V.CCE, Stock Forum).
In better markets, I was bullish on CCE when it traded closer to$1.00. Under forced selling from several overseas funds, the stock hasbeen decimated, dipping under 30 cents yesterday.
Keep in mind, the company successfully raised $32.7 million at$1.20/share late last year. They have more than enough money to pullthem through the toughest economic times - cash is king in thesetroubled waters. Most companies are not as fortunate and will certainlybe feeling the crunch, forced to shut down operations and explorationdue to lack of available funding - or risk having their stock massivelydiluted.
Not Commerce. With their massive tantalum and niobium deposit innorthern British Columbia continually growing in size and quality, ahighly prospective niobium deposit in northern Quebec (the Eldor), andenough cash to safely get through a comprehensive drill and explorationprogram on both properties, CCE is in my books one of the highestquality bottom fish you will find.
In a world where new funding has dried up, CCE with their war chestof over $20 million is in a position of strength. With the recentboard addition of industry leader and tantalum market expert Dr. AxelHoppe, Commerce now has the property, the management and the money tobecome a world class winner.
At current prices, the stock is toying with its cash value - a ridiculous valuation by any standard, in any market.
Disclosure: Author is long Commerce Resources.
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This article was written by a member of the Stockhouse community.