5 January 2012

SMG Indium Resources announces $7.5m private placement

New York-based SMG Indium Resources Ltd (SMGI) has entered into a definitive purchase agreement to issue 2,000,000 shares of its common stock at $3.75 per share in a private placement offering to entities affiliated with Raging Capital Management LLC. Of the $7.5m gross proceeds, the firm expects to use 85% to purchase and stockpile the metal indium and 15% for general corporate purposes.

“Our largest shareholder, Raging Capital Management LLC, continues to believe in our corporate vision and has decided to increase its investment,” says CEO Alan C. Benjamin. “We have agreed to issue common stock at a 10% premium to the closing bid price and essentially at parity to our Net Market Value (NMV) which was last reported on our website on 31 December 2011 at $3.76 per share,” he adds. ‘NMV’ is defined as the number of kilograms of indium held at any given point multiplied by the spot price for indium as published by Metal Bulletin PLC (posted on Bloomberg L.P.), plus cash and other company assets, less any liabilities. “With the proceeds, we will continue to expand our strategic stockpile of indium,” says Benjamin.

SMGI says that an investment in it represents an investment in a firm whose value is tied to a commodity linked to growth in the technology sector, as well as an investment in a hard asset (indium bullion).

“The supply/demand fundamentals of the indium market are very compelling, and we are excited to be shareholders in what we believe is the world’s largest strategic stockpile of the metal [outside of the People's Republic of China],” says Raging Capital Management’s chairman & chief investment officer William C. Martin. “Further, the company has successfully acquired an additional 25 metric tons of indium since the initial public offering [in May 2011, which raised $24m],” he adds.

Indium in the form of indium tin oxide (ITO) creates the optically transparent electrodes that drive LCD displays on TVs, computer monitors, laptops, tablets, smartphones and touchscreens, and demand for LCD glass has continued to grow even during the recession, says SMGI. Additionally, the unique chemical properties of indium compounds make them essential to fabricating products including LEDs, high-speed semiconductors in the form of indium gallium arsenide (InGaAs) and indium phosphide (InP), and copper indium gallium diselenide (CIGS) thin-film solar panels.

Primary production of indium is constrained by both physical occurrence (produced entirely as a by-product of industrial metal smelting) and by geographic occurrence (over 50% of the world’s primary production and in excess of 70% of reserves are located in China). Primary production has been stagnant for the past five years and has not been rising to meet growing demand, says SMGI.

Last year, the US Department of Energy (DOE) released its first Critical Materials Strategy report, which found that four clean energy technologies used materials at risk of supply disruptions in the next five years. The supply of five rare-earth elements and indium were assessed as being most critical in the short term.

SMGI believes that the indium market is in a structural supply deficit. However, economic uncertainty, generated by the fiscal crisis in Europe, has led display manufacturers to draw down inventories, even as end-user sales of TVs, tablets and cell phones have continued to grow. This has resulted in lower-than-expected demand for LCD-driven raw materials and, as a result, the current price of indium has fallen to $570 per kg. Although the price of indium can always drop further amidst uncertainty, SMGI believes this price level represents an excellent opportunity to further increase its stockpile.

See related items:

Chinese indium export policies pushing price over $1000/kg

New demand puts tension into gallium/indium supply chain

Tags: Indium

Visit: www.smg-indium.com