TMR: What would be considered a high-grade tungsten deposit?
KC: The majority of tungsten deposits contain less than 1.5% tungsten trioxide (WO3), and most have grades of only a few tenths of a percentage point. A very high grade would be over 1%, like North American Tungsten's Cantung mine. In fact, North American Tungsten recently discovered a new zone, which it's calling the Dakota zone. It has a 13.3 foot (13.3ft) interval averaged 1.77% WO3. That's an impressive grade.
TMR: American National Carbide, a tungsten carbide supplier and high-end toolmaker, has expanded its carbide scrap recycling facility to handle up to 1 million pounds (1 Mlb) scrap carbide per year. Will that impact the global tungsten market?
KC: Recycling is extremely important for meeting global tungsten demand. Current estimates of supply from recycling for the global tungsten market are about 35%, which is significant because 10 years ago it was 10%. Given that the U.S. doesn't have any producing tungsten mines, it's a positive for the country. With an improved outlook for U.S. manufacturing coupled with the shale boom, tungsten consumption is likely going to increase, and recycling will play a role in offseting any supply shortfalls.
TMR: Is that a threat to the investment thesis?
KC: No. The gradual increase in recycling over the past ten years bridged the gap between demand and supply. But at 35%, it's maxed. It's believed in the industry that you can't recycle any more than that from scrap. Now that we're capped at 35%, the spread between demand and supply will widen, if anything.
TMR: Is that why you're bullish on tungsten prices moving forward?
KC: It is a component, but more significant is the belief that no new tungsten projects are coming on-line in the next 12–18 months. Then there is China's role. China accounts for 83% of global production and has considerable influence on tungsten prices. I don't think China is looking to weaken Western producers as it would be more beneficial to maintain healthy prices to fund its businesses, its growth and its move into downstream and higher-margin tungsten products. China can respond quickly to drops in tungsten prices. For example, it was reported in one publication in January that the majority of tungsten miners were unwilling to sell their tungsten concentrate at lower prices because of the bullish outlook. This acts as somewhat of a floor, because the drop in supply would improve pricing.
I think we've seen the floor. I think we're going to see APT prices back up around the $400/Mtu mark, if not by late 2013 then by early to mid-2014.
TMR: Where should an investor park some of her/his hard-earned cash in this sector?
KC: You have to be selective. My top pick is Almonty Industries Inc. (AII:TSX.V) CEO Lewis Black and Chief Financing Officer Dennis Logan, who achieve their goals on time and often under budget. I haven't heard of many mining stories with that kind of track record. Black has a lot of skin in the game. Through his private company, his stake is 37%. He won't overpromise; he's not a promoter. The team he brought from the Panasqueira mine in Portugal has a lot of experience working with tungsten and they work extremely well together.
TMR: In December 2012, Almonty boosted tungsten recoveries at its Los Santos mine in Spain to almost 65%. The previous operator averaged recoveries of about 52% in fiscal 2011. Is there room for Almonty to further boost recoveries without boosting costs?
KC: Absolutely. Almonty is going to put in some additional gravity tables and another flotation circuit. I believe this will put recoveries up to 76%. Almonty is not making that claim; that's my number. Also, Los Santos is currently powered by diesel generators, which is expensive, but it should be tying into the national grid in July. I'm estimating it is going to save over $1M/year, and I expect its cash costs to decrease to $130/Mtu.
Almonty also has exploration upside on its Los Santos project. In the company's 2012 drilling campaign, it identified potential mineralized extensions well beyond the zones currently modeled. The deposit remains open to the north and at depth.
The company recently acquired an option to acquire a brownfield tungsten and tin project: the Valtreixal project in northern Spain. This is not NI 43-101 compliant, but historic estimates indicate there could be 8.65 million tons (8.65 Mt) mineralization grading 0.23% tin and tungsten. The strip ratio has the potential to be 1:1, whereas at Los Santos it's 5:1. Strip ratio refers to the amount of overburden that has to be removed in order to extract the ore. A 5:1 strip ratio means that for every 1 meter (1m) of ore, you have to remove 5m waste rock. If Almonty acquires the project, it could utilize its well-trained, on-the-ground workforce from Los Santos.