“The tungsten market’s really moving”, says Kerr Anderson of Ormonde Mining. Kerr’s no tungsten specialist, at least not by training. But given that Ormonde has a project that might could end up meeting around eight per cent of global demand within the next few years, it’s perhaps no surprise to hear that he’s educated himself pretty thoroughly, and also, for those times when the knowledge of the generalist isn’t quite enough, got himself on to pretty good terms with the expert consultants at CRU. After all, it’s not as if he can sit around in the pubs of London, where Ormonde is listed, or Navan, where it’s based, and shoot the breeze with fellow tungsten miners. There are none. None that are listed in London, at any rate. Wolf Minerals is the only other near-local, as it continues with its re-working of the numbers at the old Hemerdon tungsten mine in Devon. But Wolf is listed in Australia, given that its shares have been pretty range-bound all year, it spends most of its time banging the drum down there.
No, it’s a lonely life for Ormonde as London’s only listed tungsten miner. Not only does it not have any peers, it also has to contend with a widespread lack of understanding of tungsten, how it’s traded, and what it’s for. But that may be about to change. For one thing, Kerr, a realist, realises that if he has to sell tungsten before he can sell Ormonde, then that’s what he’ll do. But more importantly, it looks like the tungsten price is getting ready for a sustained period of upward movement. And where there’s price strength, the London money will follow, educating itself along the way.
Lesson one, perhaps unsurprisingly, involves the Chinese. As the second hardest natural material after diamond, tungsten is a key material today’s modern industrialised, and industrialising world, and Chinese demand has, in recent years, been key to setting the price. In the case of tungsten, though, in a way that’s not true of other metals, China really does have a vice-like grip on the market, because it actually controls a fair amount of world supply too. So, if China’s increased use of tungsten in high quality speciality steels is a signal that Chinese economic growth remains a force to be reckoned with, it’s also a signal to the world’s other major tungsten consumers, including the USA, that there’s likely to be a supply squeeze. In this context, the dynamic in the tungsten market is not unlike what’s happening in rare earths at the moment – as the Chinese introduce ever tighter regulation of their own domestic supply, the rest of the world grows twitchier and more nervous by the day. CRU reckons there could be a 14,000 tonne supply deficit within the next few years. So the hunt is on for new, economic deposits. Hence Wolf’s attempt to reactive Hemerdon, and hence Ormonde’s efforts at the Barruecopardo deposit in Spain.
Other projects will no doubt be brought to the fore too in the coming years, but the trouble is that it will take a long, long time for most new tungsten projects to make it into production. In addition to all the usual complications involved with developing a mine, the picture in tungsten is rendered even more difficult by the question of financing. Tungsten can’t be hedged, which means that the banks, in their newly cautious, straitened mode, will be fearful of committing meaningful funds for development. A project like Geodex’s Sisson Brook in Eastern Canada, which looks like eating up hundreds of millions of dollars, might be hard to get off the ground. In that context off-take agreements would seem to be the way forward, but signing an off-take agreement now, before the tungsten price has really started to move, would remove a lot of the upside for the developer, even if any deal did have some sort of sliding scale associated with it. So all the conditions for a squeeze seem right.
And amidst all of this, Ormonde is pressing ahead with Barruecopardo, which it hopes to put into production by 2012 at a cost of between €20 million and €25 million. That’s not a bad price tag for eight per cent of world supply, and with cash costs set to run at around €80 per metric tonne unit (mtu), a breakeven tungsten price of somewhere between US$160 and US$180, and the current tungsten price running US$250 per mtu, the project clearly has its attractions. We’ll know more when consultants at Scott Wilson release an updated report on Barruecopardo within the next couple of weeks. The report should cover potential capital costs, operating costs, cash flow, permitting, and all the other issue pertinent to a re-start of operations. It will also include a resource upgrade. “It’s really looking good”, says Kerr Anderson. “The resource upgrade will be significant.” So it’s possible that the Scott Wilson report will trigger something of a re-rating in the company’s shares, and mark the point when they first start to reflect the coming strength in the tungsten price.