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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Beryllium May Be New Kid on the Nuclear Block

Commodities / Metals & Mining Nov 25, 2008 - 01:59 PM GMT

By: The_Gold_Report

Commodities Best Financial Markets Analysis ArticleThe potential of beryllium oxide as a better, safer, more efficient and longer lasting alternative to conventional nuclear fuels in an era that is likely to witness a renaissance in nuclear plant activity is one factor that may spike demand for what Denis Brady calls “the wonder element” in the not-too-distant future. Industrial requirements in emerging markets such as China and India are another. In this exclusive interview with The Gold Report, Denis—who sold his beryllium metalworking and specialty alloy processing company to International Beryllium because he shares its vision for growth across the mine-to-market value chain—discusses hot prospects for this unusual material, which is simultaneously stiff and light, nonmagnetic and transparent to x-rays, with a modulus of elasticity almost 50% greater than steel, with only one-fourth the weight and an extremely high melting point of 2349°F.

The Gold Report: Tell us why investors should invest in beryllium.

Denis Brady: Beryllium is a wonder element in that it's light and can develop some remarkable properties when alloyed with other metals. Very well-established industrial applications include plastic injection mold tooling, down-hole and undersea oil exploration, landing gears in all sorts of aircraft and other aerospace applications. Beryllium nickel is used in a number of electronic applications including striker plates for lighting and water sprinklers and things like that. There's a vast array of well-established industrial uses for beryllium, well known and well respected by industry.

TGR: Who are some of the big names in the business?

DB: The main player in the industry is Brush Wellman Inc. (NYSE:BW) , a large public company in the U.S. Kind of an Avis-to-Hertz, if you will, number two in the business is NGK Metals out of Japan, which primarily gets involved in ceramics used in automotive applications. They are the main competitors and have established an oligopoly of sorts. The medium-sized business I just sold to International Beryllium Corp. (TSX.V:IB) (Nonferrous Products, Inc.) has had a love-hate relationship with Brush Wellman for 25 years; as we start to get a little more knowledgeable about some of their processes, they run away but then come back as the copper industry is a niche and operators need each other's services.

TGR: IBC's acquisition of your company increased its revenue base by more than 100%, considering NF's revenues of $11.4 million in 2007. Tell us a bit more about what Nonferrous Products is and does.

DB: Nonferrous Products, the operating company that International Beryllium purchased, produces a broad range of copper alloys. We've had big oil service companies like Baker Hughes, Cameron, and BJ Industries come to our modestly sized company that processes beryllium copper and have us make a product for them. About 30% of the business is in beryllium copper. It's not a high-growth thing, but it is steady-Eddie, and it's not going away anytime soon because of the wonderful properties—the compression strength and the heat resistance. It's just a remarkable alloy. This Nonferrous plant can take a 2% copper beryllium and with heat-treating come up with comparable properties to tool steels in terms of hardness but have 30% of the connectivity of pure copper. It's pretty remarkable. It's a wonder alloy. But again, there are presently niche applications for it. It's not like a commodity and it's not uranium.

TGR: Aside from the growing global demand for beryllium by the increasingly industrialized economies of India and China, do you see any other opportunities for beryllium on the horizon?

DB: The opportunity IBC is looking at is the fact that both existing nuclear plants and new ones will use or can use beryllium copper in some insulators and starters. As importantly, though, we think the Purdue Study, which IBC is now funding, will make a very plausible argument two years out that putting beryllium oxide in with the uranium oxide will allow the fuel to burn much more efficiently because you have even heat throughout the rod. It may be an ambitious word, but if that were to happen, it could easily revolutionize the way fuel is used just a few years out.

At this point, beryllium is very much a niche alloy in its industrial applications. You're talking probably 10 to 20 million pounds a year globally in the plastic injection molding business, for instance, which is not a lot of volume. But if you overlay a substantial increase in demand from nuclear plants, all of a sudden you're gobbling up a tremendous amount of beryllium.

TGR: The largest operating beryllium mine in the world in Juab County, Utah. How much does that mine produce annually?

DB: Beryllium right now is only nominally produced from mine sites at all. The globe is burning off stockpiles, primarily by the U.S. government with Brush-Wellman. They have a plant going up in Ohio with quite a bit of defense application. And Kazakhstan has the residue stockpiles from the old Soviet Union, which many people think may come back again. Nobody really knows how much that stockpile contains, but right now, we know of no one in the world that is producing beryllium. Even Brush, which is vertically integrated and has a plant at Spor Mountain in southern Utah, has temporarily mothballed that open-pit mine because it's cheaper for them to buy the Kazak material. The Kazaks now know this, and they are bumping the price a bit, but it's still the most economically viable way of going.

TGR: Reserve estimates for Russia and the former Soviet Union would be a bit dicey in any case, because beryllium was integral to their nuclear program and therefore a strategic resource. Like a lot of other things, they've kept that a closely guarded secret.

DB: It's kind of liar's poker—nobody really knows how much of a stockpile anybody has. I can't blame the governments for being a little bit ambiguous about that, either on the U.S. side or the Kazak side.

All I know is that the Russians mothballed a large beryllium mine in the Urals developed before the demise of the Soviets, and rumors are that they're reopening that mine. That may or may not tell you that their stockpile isn't going to last forever. And if you overlay some new demand out X number of years against the dwindling stockpiles, mine activity will ramp up.

If the Russians open up the mines because their stockpiles are running low, then Brush-Wellman will be right back at Spor Mountain. They, or someone else—maybe ourselves—all of a sudden would see the value of that sister deposit, which has not been developed at all, become quite an asset. That's making some judgments on both the supply and demand sides, but that's the way the world works; you never know how it's all going to pan out.

TGR: Aren't there some beryllium mines in Brazil?

DB: There are. There are beryllium mines in a number of different countries. IBC owns 100% of two properties in Brazil and 90% of seven claims in Uganda. These mines have done some definition of their reserves, but no production per se. And then there's the North American production—Spor Mountain in Utah. This past May, IBC acquired Rare Earths Limited, and with it the rights to a claim in a caldera—a fancy word for a volcano—south of the Brush deposit at Spor Mountain. We think that deposit has more potential than Brush's existing mine. They opened that mine back in the '40s and '50s, but were more processors than miners. They just jumped in where their claim was and never really staked out the rest of the 100 miles around it. The antecedent companies we now own have done some staking around there. Now we think we know more about those deposits than they do.

TGR: That puts IBC in a pretty advantageous position, right?

DB: We would have another advantage, too. If that comes into production, we could extract the metal from bertrandite with conventional equipment used in the industry, which is the most common practice. The beryllium in Brazil and also I think in Uganda is beryl alloy, which requires a different type of processing not now used to produce beryllium oxide, which is the intermediate form that is then alloyed with various things to make industrial products.

So, yes, some of the dynamics could very well evolve to IBC's advantage because we have some reserves. The reserves are the prize if the supply-demand ratio changes a lot.

TGR: What sort of timeline would you put on this supply and demand equation coming into play?

DB: I don't think anybody has that answer. The real question concerns how much is in the stockpiles. I don't think the U.S. Defense Department will tell anybody how much they have, and there are some uses in defense we know about and some we don't. The fact that they're putting up a plant with Brush with about 80% U.S. government money tells you that they are looking at it as a strategic asset. The irony there is that at least initially Brush will use Kazak material. I find that somewhat humorous. Of course, I think the Boeing 787 also will have more Russian titanium than U.S. titanium. I'm in the aerospace business too, where everybody does some interesting things, irrespective of nationalities and such. ( In addition to his role at Nonferrous Products, Denis is the principal owner of Mattco Forge, an aerospace forge manufacturing complex that serves the global aircraft engine market with aluminum, inconel and titanium rings and components. Its largest customers include Pratt & Whitney, Honeywell, Rolls Royce and General Electric .)

TGR: Has the U.S. government identified beryllium as a strategic reserve? For a while they were selling it on the open market.

DB: The last I knew they were still selling it, but I think that's slowing down. I think it is strategic reserve, but they had too much of it and didn't think they needed as much. I don't know that for sure; I was more involved in the industrial applications of beryllium and haven't followed the pure beryllium business that closely. I will do that going forward, because I'm now on the IBC Board and need to do some work on that. There are people who can help me on that, both within the company and through my contacts around the industry.

The fact that the Defense Department is putting up a new plant within the United States and the fact that the Russians may reopen a mine that was shut down 15 years ago tells you something is going on, aside from the temporary depression in mineral prices from the deflation that's happening around the world. So that's a thumbnail of where the pop could happen.

Just two weeks ago, International Beryllium appointed Denis Brady a non-executive member of its Board of Directors and announced that he will chair the Board's Audit Committee. Until IBC's recent acquisition of the 62-year-old Nonferrous Products, Inc. earlier this year, Denis had served as President, CEO and majority shareholder of the consistently profitable and growing enterprise that provides tooling components to Asian, European and North American plastic mold producers, electronic component manufacturers, the global oil and gas service industry and North American automotive industry.

NF is also an approved vendor to the US Navy and private submarine and aircraft carrier producers and repair facilities. A graduate of Fordham University who earned his MBA at Columbia University, Denis acquired Nonferrous in the early 1990s and delivered consistent annual revenue growth while also modernizing the plant and product offerings and expanding the market both in North America and overseas. Before that, he served in various capacities—as CFO of a NYSE-listed mining and manufacturing company, Hertz VP and Treasurer and other senior banking and financial positions.

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The GOLD Report is Copyright © 2008 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

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