Tungsten investors braced for exciting year as new mines come on stream

(MENAFN- ProactiveInvestors) Investors in tungsten firms are set for an exciting year as several new mines of the versatile metal are set to come on stream imminently including one giant project in the UK.

And after a recent period of weakness in prices demand is looking up according to analysts which could further boost the economics of these projects.

Grabbing headlines has been the Drakelands mine in Devon operated by Wolf Minerals (LON:WLFE) which is set to start production this August.

This will certainly be a red letter day for the industry as it will be the UK's first new metal mine in 45 years with one of the western world's largest resources of tungsten at 37.5 million tonnes making Wolf a significant player in the space.

Also set for production is Ormonde's (LON:ORM) Barruecopardo mine in the second half of 2016; W Resources' (LON:WRES) La Parrilla project also in Spain next year and Premier African's (LON:PREM) RHA tungsten mine in Zimbabwe which is on course for first production this June.

Apart from Wolf which aims to generate 5000 tonnes of tungsten concentrates per annum over 10-15 years these are not huge mines but they will certainly add to the contribution made to global tungsten supply outside Asia.

Ormonde is targeting 227000 mtu's (Metric ton units) over nine years; Premier aims for 72000 mtu's per year over 22 months and W Resources' aims to produce 2300 tonnes a year by 2017 from its open pit.

The significance of the £139mln capital cost Wolf project cannot be overplayed. It will reportedly supply 3-4% of world production of tungsten and pump millions into the UK economy over the next decade and provide 200 jobs. 

It has been heavily supported by the government due to its importance to the country's export market.

Using a tungsten price of US$415/mtu the project has a post tax net present value (NPV) of £114mln with a 26% IRR (internal rate of return).

By way of comparison Ormonde's Barruecopardo has a value of around £60.5mln assigned it by broker SP Angel.

And all this comes at a time where if anything other metal mine projects around the world are being scrapped or mothballed.

The gold and silver world is certainly under pressure and the iron ore price sank to a six year low last week.

So what's special about tungsten Crucial is the metal's hardness and its numerous applications aside from lightbulbs and in steel making not least in the growing technology market where it is used for components of touch screen devices for example the ubiquitous smartphones.

One of its main uses is also in cemented carbines -  a tough composite engineering material that is resistant to wear and corrosion.

Tungsten sourced from existing devices and components has reached its limits so demand globally is increasing and China the biggest producer has shown no signs of loosening its control on exports which it has sharply cut meaning the world is looking for new supplies.

China supplies about 54% of the globe's tungsten followed by Canada at about 8% and Russia at about 7% so there is certainly a market for these Europe-based producers.

In terms of prices tungsten is priced at metric ton units (mtu's) of APT (Ammonium Para Tungstate) which is equal to 10kg of tungsten per tonne. It has fluctuated between a low of US$10 mtu in the 1960s to a high of US$480/mtu in 2011.

Currently it stands around the US$257.5/mtu mark.

Research group Edison has said despite slower growth ahead it expects global tungsten consumption to expand at a CAGR (compound annual growth rate) of 3.5% in 2014-18 estimates leading to the potential for an APT price recovery as new mine supply will be required.

Analyst and managing director of British market intelligence firm Roskill Information Services Robert Baylis recently told a conference that the 94500 tonne tungsten market in 2014 was expected to grow at about 2.6% a year reaching 105000 tonnes by 2018.

But he also highlighted that tungsten prices had shown significant volatility over the last five years and reflected an unstable supply/demand position.

Nevertheless these are certainly exciting times for tungsten and tungsten investors with much activity ahead over the coming year.