Perpetua Resources: I Worry About The Antimony Myself (NASDAQ:PPTA)

Perhaps I worry too much

Perpetua Resources (NASDAQ:PPTA) does seem to have an interesting plan here.

There’s an old mining area at Stibnite which contains gold, silver, some tungsten and antimony. Stibnite also being the name of the major ore of antimony – we’re really pretty sure there’s antimony there. Given that the area was mined in the past, we are also really very sure that there’s gold in them thar hills, to use that old line.

Going back over old deposits using more modern techniques is an excellent mining strategy as extraction and exploration technologies do improve over time. So, good plan all around.

And yet I have a certain little worry here – as does the market given that PPTA stock is down 59% over the past 12 months.

Environmental matters

One worry is that the area has been mined in the past. Therefore there’s – given the way the past did things – a certain amount of environmental remediation that needs to be done. And agreements to be much cleaner etc this time around. That’s fine, in one sense, as that can certainly be done.

But we do all have to worry about environmental permits these days. Given how Northern Dynasty is just about entirely shafted on these same issues gaining access to such environmental permits in the US simply isn’t a sure thing at all.

Okay, that’s a risk that accompanies all US mining operations but it’s still a risk.

Deposits

Given the past at these sites (Stibnite is more a collection of deposits than just the one) I don’t doubt that the claimed minerals are there. The reserves and indicated reserves numbers I’m just accepting at face value. Seems sensible given the past history of mining there.

Gold

Chatool Investments has done an analysis of Perpetua looking at the gold prospects. Partly because I know little about gold and partly because there’s no point in repeating matters go read that there on that portion of the subject.

Antimony

What worries me, a bit at least, about that gold analysis is that Perpetua is now, in its own documentation, playing up the antimony side. If the gold is such a slam dunk then why wouldn’t they just be talking about the gold? The same point another way, if they’re talking about antimony so much, then what’s not so slam dunk about the gold?

Then we get into what worries me about antimony. Sure, as USGS points out, the price has been rising recently. There are strategic issues here. There’s no US mined material, everything is either imports or produced from imported ores and concentrates. Given unhappiness with China and Russia maybe that’s not a good idea.

There’s a defense angle, antimony is used in munitions. That leads to Perpetua gaining a couple of – small – contracts to make sure they could supply DoD. The answer to both those technical questions being funded there is “Yes, easily”. Making antimony trioxide is known stuff. Mil-Spec isn’t difficult.

Perpetua also tell us about supplying to a novel battery tech maker (Ambri) and so on but I’m less than convinced there – there are many novel battery techs and most of them won’t work commercially, that’s just the way of new techs.

Antimony demand

It’s all too early in the process for us to have detailed numbers on antimony production costs at Stibnite. But the thing that worries me is that I expect to see two things happen over the next decade. A drop in demand for antimony and also a bolus of recycled material hitting the market. Neither bode well for the antimony price.

Antimony usage in fire retardants – a major market – doesn’t get recycled. No one does reprocess couches for the antimony trioxide. Similarly, the usage in munitions doesn’t, except as a near trivial input to the next process.

Another big usage is into antimonial lead for lead acid batteries. This is recycled – more for the lead content than anything else, and then more for environmental reasons than anything else – lead’s not a nice thing to have lying around. But that does all mean that the antimony contained does recycle around the system.

But we have two technological changes happening. The first is that antimony is being replaced by calcium in some to many of such battery designs. Quite why is beyond my technical knowledge but it is happening. This means that as the antimonial lead circulates around the recycling system we’re gaining a supply of antimony surplus to demand from the antimonial lead industry.

The second is of course that lead acid batteries are rather on the way out. EVs and lithium battery powered cars do not also have a lead acid battery in them. That vast stock of antimonial lead is therefore going to be recycled one last time in the coming decade or two – leaving us with quite a pile of antimony.

I’m therefore not bullish on the antimony problem. Sure, I get domestic supply, security, military use and all that. But it is also true that consumption by lead acid batteries is going to decline for those two reasons above – also, that there will be antimony available in end of life lead acid batteries. That doesn’t, as I say, make me bullish on antimony prices.

My view

In my working lifetime I’ve seen antimony at 99 cents a lb. United States Antimony (agreed, more a processor than miner) hasn’t exactly taken off. I’m heavily discounting the gold story at Perpetua simply because they themselves are doing so and talking up antimony. And I’m deeply unconvinced of the prospects of the medium term price of antimony. We have technological change significantly reducing demand for it.

The investor view

It is, of course, entirely possible that the Stibnite operations will be so low cost as to make mining it vastly profitable. But to convince us of that we need, I think, rather more information than we’ve got of those mining costs. Currently we’re being shown how exciting antimony is as a market – yes, it is. But we want to see how a new mine would fare if prices fell too – as I think they will do.

So, my conclusion is that we need to know more here. What are the all in – Opex and Capex – costs of production. Only at that point is it possible to take a view.

Mine, currently, is that I don’t see a great future for the antimony price. Therefore, I need convincing that a new mine can be profitable at prices significantly below today’s market.