Imperial Mining: No, Don’t. There’s Delusion Here (OTCMKTS:IMPNF)

Imperial Mining (TSXV:IPG:CA)(OTCQB:IMPNF) wants to go scandium mining

Well, that’s interesting. I’ve a lot of experience of people who want to go scandium mining. Even, to the point of being able to spot bad assumptions being made by people who want to go scandium mining. So, let’s see whether Imperial Mining is making one of the common bloopers.

Microcaps

We tend not to report in microcaps around here partly because there are so many of them. More because there’s often a reason for a -cap to be micro- : there’s some delusion in the planning process that means that the idea’s just not going to fly.

So, this isn’t a report on a microcap stating that this time is different. Rather, it’s to point out that there just often is that reason why an idea isn’t going to fly. Which then explains why a company is a microcap and highly likely to stay that way.

No, I am not 100% certain here. After all, I’m not 100% certain that I will wake up tomorrow morning and one day that will become 100% true as well, that I won’t. But I can, on the balance of probabilities, say that I probably will wake up tomorrow morning (I’ve no late night planned which will make it tomorrow afternoon). Just as I can pour scorn on the chances at Imperial Mining with that fair balance of probabilities.

The scandium problem

The scandium problem is really very simple. There are many places we can extract it from. However, many of those require operation at a certain scale to have a hope of being economic. But the scandium market is very small. So, one of these plants at economic scale would swamp the scandium market with new production – and therefore would not be economic.

Some of the other sources are marginal production as byproduct of other processes. This does work and I know of a number of people doing it. It makes near no difference to anything we can invest in though – Rusal’s 3 tonnes a year in Russia doesn’t move the needle on Rusal’s share price even if sanctions left us free to invest in it. Sumitomo’s results are near entirely unaffected by Sc extraction from the Philippine nickel operations even as it appears to be entirely successful.

The only people we could invest in where scandium makes a difference are those mining primarily for Sc. But they’re the people who have to do this at scale and will thus crush the market price with their own production.

For example, Niocorp

I’ve written a couple of times here about Niocorp and their scandium plans. As I’ve said, repeatedly, I agree the ore contains what they say it does, that it’s separable and so on. The bit I vehemently disagree with is their idea that they’re going to come to market with four or more times annual global consumption and then sell all that material at three times the current global price.

I’ll go out on a limb here and insist that they won’t. Selling multiples of current consumption at higher than current prices is not going to happen. It just ain’t.

This also applies to a number of other people who are looking at nickel laterites and so on. The processing plants – if Sc is to be the primary product – just need to be tens of tonnes a year to be economic. The global market is 15 tonnes a year. Therefore they will collapse the price against themselves.

Imperial Mining

I don’t actively go looking for stocks like this but Google knows I like my scandium and it presented me with a video of a guy from this company talking about how great it all was. Hmm, well, that remains to be seen.

So, I look up the actual document they’re touting these days to show how great the Crater Lake scandium product is going to be. In which I find:

Commodity Prices Sc2O3 US$/kg 1500

(It’s on page 13).

Well, that’s a little rich. As I’ve said before, and checked the last time I wrote about Niocorp, I can buy from China at $1,100 right now. And that’s without negotiation, nor dangling future business or anything. I can – so I am assured at least – buy in the tens of tonnes per annum at that. So $1,500 looks a pretty rich estimate but you know, leave people be with things that are at least roughly right.

But then there’s this (page 10):

The overall scandium recovery through hydrometallurgy will be 81% and will thus produce 87.3 t/a of Sc2O3, with a mixed REE hydroxide product estimated to be 1,865 t/a.

That’s delusion. The two together certainly are. They’re saying they can produce 5 times and more current annual global usage. Well, OK, that bit we can believe. They’re then saying they can sell 5 times and more current annual global usage? But, who to? Finally, they’re saying they can come to market with 5 times current annual global usage and not crater the price against their own production?

Nope, that’s nonsense.

Rare earths

Yes, they also say there’s a rare earth concentrate there. As when talking about Energy Fuels, I’d want to see much more information about the content of that concentrate before I tried to ascribe a value to it.

But that doesn’t really matter

In fact, to my mind, nothing else Imperial Mining says about anything at all matters. In my area of expertise they’re saying something that is absolute and obvious nonsense. Therefore I do not trust whatever else they say about areas where I can’t spot any errors.

My opinion

This is, all, entirely opinion of course. It’s just the opinion of someone who knows this little corner of the world. The scandium market isn’t about to expand out to 5 times or more its current size. Therefore no one will be able to come to market with five times current annual global usage and leave the price roughly unchanged as Imperial Mining here assumes. It’s just not one of those alternatives that this universe offers us.

Thus I park Imperial Mining back on the shelf where Google found it to show to me.

Could I be wrong?

Sure. Maybe scandium becomes the thing that makes nuclear fusion work tomorrow. Shrug. But is aerospace or automotive use of aluminium scandium (the ultimate claim being made here) going to expand out at that sort of speed?

Nope.

The investor view

There’s a reason why many companies are microcaps. Their plans just seem not to accord with this version of the universe we inhabit. This is also why we normally don’t talk about them here at Seeking Alpha and also why they’re very rarely recommended when we do.

The point of this is really to show that’s there’s an actual reason for all of this. Companies do have to be in accordance with reality for their plans to make sense, to be worth investing in. Some microcaps aren’t and that’s why they’ll remain microcaps.