SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies on the supplying the world’s new and existing metals resources. We look at why they are compelling and why each could be a fit for a blank-check merger.
There is more certainty coming to the market in the form of the Fed actually making rate hikes rather than musing about them. But, the near-term picture is one that favors fundamentals and cash. This presents a particular opportunity for companies in less futuristic and flashy industries to get themselves to the public markets and be appreciated.
But, the IPO market has not yet picked up its lethargic pace, so SPACs may still be their best ride. Among the fundamental companies at the center of the economy’s mining and industrial sectors, there are still plenty of companies innovating as well. After all, as a high polluting sector, the metals industry needs to get with the times.
Forty-four percent of all CO2 emissions from industry come from producing steel and non-metallic mineral products like cement. And, with more and more capital drifting into the ESG category, there are particular long-term opportunities for those making greener steel or alternative metals.
Global Advanced Metals
One of those alternatives to zero in on is tantalum.
Although it is generally not grouped together with the sorts of rare earth materials that are critical for EV batteries and other high-performance electronics, tantalum is nonetheless rare and has highly demanded applications. It is mostly commonly used as an ingredient in capacitors for the electronics within cars, phones, computers and various heavy tools.
But it is also included in semiconductors, industrial heat exchangers and is an ingredient in several superalloys used in aerospace and defense applications. Its high strength and corrosion resistance without measurable toxicity makes it a go-to metal for medical and dental implants as well.
Wellesley, Massachusetts-based Global Advanced Metals (GAM), supplies to all of these industries and is among a small number of producers that source from conflict-free geographies. GAM’s primary supply comes from exclusive rights its has to a portion of Pilbara Minerals’ (ASX:PLS) significant deposit in Western Australia.
The world’s largest producer of tantalum is the war-torn Democratic Republic of Congo with about one-third of the world’s 2,100 metric tons in annual supply. It is followed by Brazil with 22% of the market, Nigeria with 12%, and no other nations represent more than a low single-digit share, according to the US Geological Survey. Australia’s share also nearly doubled between 2020 and 2021 to 62 metric tons produced, surpassing Russia at 39 metric tons and catching up to China, which is estimated to have produced 76 metric tons last year.
As such, Global Advanced Metals’ mineral rights are geo-strategic in addition to being valuable for commerce. In 2020, the US Department of Defense banned the military from incorporating tantalum supply from “adversarial” nations. Australia is the only country among major suppliers to be counted as not only as not an enemy, but a close ally.
Global Advanced Metals has kept its own numbers close to the vest but has been owned by private equity firms Resource Capital and Edgewood Growth since 2009, with metals commodity-trader Traxys buying a 20% stake in 2011, according to Pitchbook. None of these investors would exactly hurt from liquidity options moving forward, especially given the timing of their initial investments.
On the green steel side, Boston Metal is developing the technology to make steel in a way that would require no coal or other extractive inputs.
This would dodge some of the most pollutive sintering and heating processes in order to transform iron ore into steel. Boston Metal’s process uses molten oxide electrolysis (MOE) in kiln-like cells about the size of a school bus to convert even low and mid-grade iron ore into high purity molten iron using a low-emissions electrical process.
Because these cells are relatively small and modular, they could be used by iron ore miners to transform their raw resources into a refined product at the mine site. This would both increase their margins and eliminate a significant burden on the supply chain as millions of tons of ore normally bounce between refineries and processors on their way to becoming construction-grade steel or other alloys.
Boston Metal is somewhat of an earlier target as it expects to see its first commercial plant deployments for lower-grade ferroalloys in 2023. It aims to have its cells integrated into plants producing high-grade steel by around 2026.
But, the company also has capital needs as it has raised $76.8 million to date, $50 million of which came from a January 2021 Series B. Frequent SPAC investor Fidelity Investments co-led this raise, along side strategic investors in the form of BMW’s (DE:BMW) venture arm and mining giant Vale (NYSE:VALE).
Now 18-months later, it is likely back at the watering hole and there are a number of SPACs that may be lined up to meet it there. Seaport Calibre Materials (NASDAQ:SCMA) could be the first call as it has a little over six months to complete a transaction, and it is led by metals industry veterans CEO Jim Tumulty and CFO Ed Siegel who each clocked over a decade with Raymond James covering the steel industry.
Achieving green steel has also been an obsession of the GFG Alliance, which has rolled up a number of steel concerns over the years with the goal of converting their process to cleaner methods. Its central goal is reaching carbon neutrality by 2030.
Its Liberty Steel Group now consists of 30,000 employees across four continents, and accounts for a significant portion of its $20 billion in annual revenue. SPACs could play a number of different roles in helping its vision come to the fore.
The overall group provides 18 million tons of rolled steel to the market annually and is the eighth-largest steel producer outside of China. Much of this work has come through acquisitions. It bought out Arrium’s steel operations and incorporated its Australia assets in 2017 around the Whylla Steelworks. It also owns the Tahmoor coking coal mine in New South Wales, and even if it would not be interested in a SPAC deal for the full group, it has plenty of tempting pieces to spin off.
Liberty has 170 manufacturing, distribution and recycling locations across Australia and it has also incorporated steel furnaces in the UK and Czech Republic. Beginning in April, it launched a refinancing and restructuring effort as it was exposed to factoring player Greensill, which collapsed in scandal last year.
A SPAC could present an opportunity to Liberty Steel to gain cash and liquidity by combining with a part or all of the group, and spinning certain areas of its portfolio could help it hit its goal of being carbon neutral by 2030. After all, the market has not disliked old school industrial targets that have listed via SPACs. Most recently, Algoma Steel (NASDAQ:ASTL) combined with Legato in October 2021, and is still coasting near its deal price closing Thursday at $9.20.
Rigel Resource (NYSE:RRAC) has the resources to approach Liberty for parts of its portfolio or the whole group, having raised $300 million in its November 2021 IPO. It is lead by executives from Orion Resource Partners, which has about $8.9 billion under management to invest in the metals and mining supply chain, and could potentially bring committed heft to a deal.