(MENAFN- ProactiveInvestors)
’ () Watershed Tungsten Project in Queensland is benefitting from the depreciation of the Australian Dollar against the US Dollar as well as lower Australian costs.
This has improved the already attractive financial parameters of the project over the Definitive Feasibility Study assumptions made in July 2014 improving the chances of attracting a strategic partner.
Japan Oil Gas and Metals National Corporation (JOGMEC) are currently working to find a Japanese partner that will acquire a 30% interest in the project and become Vital’s joint venture and funding partner.
The company expects to be working with its new partner towards financial close during the second half of this year.
In addition an initial five-year permit application has been approved over an advanced tungsten project in the German State of Saxony expanding Vital’s future growth pipeline beyond Watershed.
“We are seeing some important improvements in the operating cost estimates for the Watershed Tungsten Project” managing director Mark Strizek said
“Cost inputs for the Watershed DFS set in June 2014 were now significantly lower.
“Tungsten is sold in US Dollars and the decline of the Aussie Dollar against the Greenback increases the returns of our project. This is exactly the same scenario that has seen Australian gold producers increase in profitability.”
Watershed is development ready with all significant environmental approvals and Mining Leases in place and the 2014 DFS having outlined a substantial mine life of 10 years production of tungsten concentrate.
Watershed DFS Review
The DFS completed in 2014 demonstrated that the Watershed Tungsten Project is a premier long-life asset.
Its key conclusion was that a 2.5Mtpa development at Watershed has the ability to produce high quality tungsten concentrate over a 10-year mine life at competitive mine operating costs.
During the Quarter Vital undertook a review of the cost inputs used in the DFS as part of is broader objective of continuing to enhance and improve the project.
Changes to the exchange rate and diesel costs along with increased labour availability have largely moved outside of the range considered for the DFS supporting the company’s drive to reduce costs at the Watershed Project.
Vendors were involved in the review and in most cases provided updates to previous estimates.
In the case of diesel – which is a significant component of the mining cost – the quoted price is at a significant discount to the pricing assumed for the DFS.
In addition a number of major cost savings have also been identified involving the purchase of low-hour and unused surplus equipment that has become available as a result of the downturn in the resource industry in Australia.
As previously noted the project is now expected to generate similar returns at a price of US$375/mtu APT compared to the previously reported case which used a price of US$450/mtu and an exchange rate of US$0.90.
This includes post-tax NPV of US$129 million 24% IRR and payback in 2.5 years. Free cash flow is estimated at US$281 million.
Opportunities to enhance project metrics include:
Additional Project life
- Potential for an underground operation – ore body open at depth (MWD119 20 metres at 1.27% WO3 from 302 metres;
- Potential for satellite surface operations at Desailly and Watershed South – drill ready exploration targets; and
- Pipeline of exploration prospects within trucking distance of proposed plant;
Processing Plant
- Optimisation of process recovery post ramp-up; and
- Test work suggests that average recoveries could increase to about 77% WO3;
Financial
- Further depreciation of the Australian dollar against the US dollar may result in improved returns over forecasts;
- Continued reduction in Australian mining industry costs will deliver increasing returns; and
- Reduction in Project Capex as a result of very competitive market for plant constructors.
Tungsten Market
Tungsten prices have stabilised after falling in response to global economic conditions on top of seasonal market softness and the outlook remains favourable.
While the recent decision by the WTO against Chinese trade practices for metals such as tungsten has resulted in the proposed replacement of export quotas by resource taxes it still retains the intent of the Chinese authorities.
This is the preservation of strategic metals such as tungsten for domestic consumption and if exported will be in the form of high value-add materials such as tungsten carbides.
This presents real supply threat risks for the tungsten industry outside of China a risk that JOGMEC clearly understands as Japan’s tungsten industry manufactures highly-prized “hard metals” or tungsten carbides used for shaping and machining of parts in the automotive industry industrial engineering medicine and the aviation industry.
Japan has no domestic tungsten mining industry and relies 100% on imports to supply its industry.
Exploration
A three-year PhD study into the Watershed deposit commenced during the March 2015 Quarter.
This is being completed by James Cook University with funding sourced from the Geological Survey of Queensland’s Future Resources program and is focused on understand the tungsten-tin deposits in the north as well as copper-gold deposits in the southern part of the study area (Charters Towers).
This project involves research on the deposit scale to determine the local controls on mineralisation.
It is anticipated that the outcome of this study will enable Vital to identify the source of tungsten mineralisation which after drilling could significantly increase the resource base of the Watershed deposit.
The northern section of EPM 15544 was relinquished during the Quarter.
This area reduction was completed in accordance with the permit conditions which require a 40% area reduction at the end of Permit Year 3.
The northern area of the EPM had been subject to numerous studies and sampling campaigns and did not meet the company’s criteria to warrant further exploration.
Exploration planning for the upcoming field season has continued throughout the Quarter.
Work slated to commence after the wet season is predominantly focussed on grassroots exploration on under-explored regions on EPM15544 EPM18171 and EPPM14735.
As the wet season was late this year it is unlikely that field work will be able to commence before late in May.
Aue Tungsten Project
Although not a core project Vital received notice that an application for an Exploration Permit in the German state of Saxony had been approved for an initial period of five years.
It is located in the western Erzgebirge region which is in the heart of one of Europe’s most famous mining regions and is surrounded by several world-class mineral fields within a radius of less than 20 kilometres.
This permit is a useful addition to Vital’s exploration portfolio due to:
- Reduced exploration risk: tungsten mineralisation has been sampled and mapped from underground adits and drill core;
- Preliminary metallurgical testwork showed WO3 recoveries of around 85% for concentrates containing around 60% WO3;
- Extensive geological data package; and
- Supportive Government for strategic metals mining projects.
Historical mining and intensive exploration work carried out between the 1940s and 1980s demonstrated the high prospectivity of the Aue permit area for tungsten tin and silver mineralisation.
Tungsten was mined in Zschorlau in the western part of the permit area from quartz-wolframite veins between 1917 and 1959. The mine reportedly produced 2100t of tungsten concentrates in this time.
Work on these prospects included underground exploration which exposed quartz veins up to 1 metre wide from which slit samples (channel samples) were reported to return grades of over 20% WO3.
Work on the permit in the upcoming months will include data capture and review.
There are numerous drill holes in the area of the Bernsbach Prospect from which the metadata is now being sourced.
Once this information is available it is anticipated that follow-up drilling programs will be planned on high quality targets to rapidly define mineral resources.
In all 2015 is shaping up as a pivotal year for with its flagship Watershed Tungsten Project in development ready state and a new tungsten project gain in Germany.
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