TGR: What is the production timeline for its Mt. Carbine tungsten project in Australia?
RB: It could be brought on-line fairly quickly, but the company needs to secure the necessary financing to develop it. That may come depending on the success it has with processing stockpiles and the money that generates. Mitsubishi won't put up a lot of money to invest in a large-scale mine when it doesn't need the material. Mitsubishi relies on China and the rest of the world for intermediate products but that could change. If Japanese companies see the potential to be more competitive through processing tungsten concentrate, then those companies may look to fund more tungsten operations.
TGR: Your report discusses three clusters of tungsten projects. Category No. 1: Large, high-capex, low-opex, low-grade. Category No. 2: Midsize, low-capex, low/medium-opex, midgrade. Category No. 3: Midsize, low-capex, high-opex, mid- to high-grade. Can you rank those for us?
RB: The medium-capex, medium-opex, relatively high-grade deposits are the ones that stand out. That's the sweet spot for tungsten projects. The projects that have advanced the quickest and achieved the most success are those in that range.
Those with high-opex or high-capex or both present challenges. If you're prepared to take a lot of risk on a big mine that may produce a lot of material, then you could be successful—but prices have to stay high. When the price is high you can develop almost anything. You ought to look at the projects that can compete with existing producers at the lower end of the cost curve because that's going to lower risk.
The other issue is that the large-capex projects will produce a lot of tungsten. Where is that material going? There are only five or six processors outside China. Who are you going to sell it to? That material will be more than one supplier can handle in a year. That's what has happened in iron ore. Rio Tinto Plc, Vale S.A. and BHP Billiton Ltd. have invested in low-opex operations that can weather the price downturn. They gain market share as the price comes down and others go out of business. In less transparent commodities in much smaller industries, it doesn't work that way. It's not going to work in tungsten.
TGR: Who is the Goliath in the tungsten market?
RB: Outside of China really it's North American Tungsten Corp. Ltd.—it is the biggest producer outside China and it has a relatively small market cap because it hasn't been that profitable and its costs are high. In tungsten most of the mines are privately owned. Many public companies are developing tungsten projects but the operating side is mostly private.
TGR: What are some development-stage projects with preliminary economic assessments or feasibility studies that suggest the opex costs would be in that $250/Mtu range?
RB: The most advanced is Ormonde Mining Plc's Barruecopardo tungsten project in Spain. The feasibility-level opex at Barruecopardo is around $130/Mtu. The company recently secured a mining permit. It's a relatively low-opex, low-capex, medium-grade, medium-output project similar to Hemerdon. Ormonde has an offtake agreement with a trading company, Noble Group, but needs someone to put up the capital for development.
TGR: Will Ormonde get the money?
RB: It's certainly possible. Ormonde could be competitive at that operating cost range. It's a question of where the tungsten concentrate will end up. There's a limited number of tungsten buyers. Having an offtake agreement doesn't necessarily mean it will be able to sell to processors at a profit. China imports some tungsten concentrates. If the concentrate is good quality and low cost, it could find a market there. If it were to go to a Western processor, then it's probably going to have to displace material from an existing operation. That's going to be harder to achieve.
TGR: Are there others that are in that cost range?
RB: Wolf Minerals' Hemerdon is in that range. Carbine Tungsten is in a similar bracket with Ormonde's Barruecopardo in terms of capex and opex.
TGR: What's the biggest challenge facing these companies?
RB: Securing a customer is probably the biggest challenge. If we look at rare earth elements, for example, Molycorp Inc. and Lynas Corp. are great operations, but they struggle to sell the material that they produce because the market isn't big enough. They must displace existing suppliers. If you can't sell into China, you have limited options on where else to sell. The tungsten market provides more options as Europe, North America and Japan still have a large share, but supply and demand is still dominated by China.
TGR: Who is likely first past the post?
RB: Barruecopardo should be next; it's the most advanced. Ormonde just needs to find the money to develop it. That's probably the leader in development-stage tungsten projects. Another one that is well advanced is Northcliff Resources Ltd.'s Sisson tungsten-molybdenum project in New Brunswick, Canada. The advantage is that unlike most other project developers, Northcliff is backed by the Hunter-Dickinson Group, so it has the experience and resources to continue development.
TGR: On the opposite side of Canada in the Yukon there are three major tungsten projects. Do those fit into the cost curve?
RB: The two big ones there are similar to Sisson. Those are Largo Resources Ltd.'s Northern Dancer and North American Tungsten's Mactung project. Both are good projects. Mactung in particular is very high grade. The issue with Mactung is that infrastructure is limited. It also is capital intensive.
Largo's Northern Dancer is less remote but the capital costs are even higher than at Mactung. Largo has a tungsten asset in Brazil that is on care and maintenance because of a severe drought. Largo is concentrating on its vanadium assets in Brazil and would probably bring the tungsten operation in Brazil back into production before it starts any further development on Northern Dancer.
TGR: What are some things to watch for in 2015?
RB: Watch for the impact of the loss of the Chinese export quotas. China may replace the quota with other domestic policy. For example, it could impose a more stringent mining quota on domestic operations or increase the resource tax to limit the loss of upstream concentrate to processors outside China. In tungsten scrap use, there will likely be some growth but that is getting close to peak use. Of course, some new supply will enter the market once Hemerdon enters production late next year.
TGR: Do you have some final thoughts on the tungsten market heading into 2015?
RB: It's probably going to be similar to 2014. You'll see a largely balanced market with steady pricing. Prices may fluctuate in the short term on different factors, but it's unlikely to be much different from this year.
TGR: Thank you for talking with us today, Robert.
Robert Baylis is managing director of Roskill Information Services Ltd., which is based in London and provides research and consultancy on industrial mineral, minor metal and steel alloy markets. Baylis joined Roskill in 2006 focusing initially on the cobalt market. He first started researching the tungsten market in 2011, co-authoring and editing Roskill's 11th edition of its multi-client tungsten report published in 2014. Since 2011, he has also undertaken several single-client research projects on tungsten, as well as advancing Roskill's tungsten research, specifically on secondary production, Chinese domestic production and production costs.