DETROIT () -- The report to Congress by the National Academies (of science and engineering; NA) that set up a metric to define critical metals for industry, and which I reported upon to the readers of Resource Investor on , did not select, with that metric, the metal tungsten as "critical to industry." That was, in my opinion, sheer myopia on the part of the NA and may well have resulted from the fact that so few industrial end-users were part of the actual selection process, even though one of industry's best thinkers on the subject, Ivan Herring, then with, and now retired from GM, was invited to make a presentation to the NA panel designing the metric.
In order to research the topic, 'how to invest in tungsten', I modestly decided to first look at an article on tungsten, the tungsten market and tungsten mining in North America, which I posted on a website that I edited in 2005, to see what had changed since then. I have recently, since last week, in fact, received quite a few emails from new tungsten ventures and from the two largest 'old' ones, which existed when I posted the article in 2005.
Although a lot more companies now than then are developing new, or trying to re-open existing old, tungsten properties in North America, the regulatory and political climate hasn't changed much. What has changed, for the worse, is our dependence in the U.S. on imported tungsten ore and finished goods; new tungsten ore production has today become, for all intents and purposes, the exclusive provenance of the Peoples Republic of China (PRC).
In 2005 we imported only 47% of our tungsten needs, directly, from the PRC. In January 2007, the U.S. Geological Survey (USGS) reported officially that the figure for 'direct' imports was 75%, and, if you add to that number that portion of "The U.S. imports for consumption of tungsten by country" that most likely originated in the PRC you get a realistic and disheartening 90%!
Look at the price of tungsten over the last few years:
Source: Primary Metals Inc.
Note that tungsten is priced in ammonium paratungstate (APT), a more refined downstream product, and thus will receive a higher price than the tungsten concentrate that is the actual mine product. A metric tonne unit (MTU) of Ammonium paratungstate is 10 kilograms, which contains 6.95 kilograms of tungsten, so to get the U.S. dollar price of tungsten itself you divide the price per kilogram of APT by 6.95 first to get the price in dollars per kilogram and then by 2.2 to get the price in dollars. Why? Its history, but the shape and direction of the graph is the same no matter how many (purely numerical positive) factors you divide or multiply by.
Note that although the USGS officially states that the last tungsten ore 'production' in the United States was in 1994. That production was at the Pine Creek Mine in Inyo County, California, and the mill at that mine continued processing above ground ore and concentrates from outside customers until 2000 when it was mothballed. After last week, I received the following email from Doug Hicks, General Manager of the Pine Creek Mine:
"I loved your article last week. U.S. national security almost took a major hit in the past couple months when our County (Inyo) Planning Department ordered the destruction of the mill (idled in 1990) in the name of mine reclamation. Thank god the planning commission suspended that order so we can amend our reclamation plan to keep the mill permanently; else restarting production would be much more costly and take a lot more time. As it is we believe we are in a good position to increase reserves through exploration, lower production costs, and restart production.
"To date the Pine Creek Mine has delivered 37% of U.S. domestic tungsten production; has produced 8.4 million short-tonne units of tungsten trioxide (WO3), 25.4 million pounds of molybdenum products, 36.6 million pounds of copper, 1.8 million ounces of silver and 3,600 ounces of gold. 'The Pine Creek Mine helped light up America and win the Second World War' (Valerie Alvord. October 4, 2000. Hard times pull down the 'Mine in the Sky'. USA Today). The Pine Creek Mine is listed with the USGS under the site name 'Pine Creek Tungsten Mine and Mill' with a current status and major importance for the strategic metal tungsten. From 1937 until the mine was placed on standby status in 1990, the Pine Creek Mine was in nearly continuous production for 54 years. Processing of outside concentrates continued until 2000. In 2000 the operation was mothballed to preserve it for an impending global tungsten shortage. Since 2000 the mine has continued exploration and care and maintenance. The result of the exploration program has been the addition of 160 acres of claims and millions of tonnes of potential reserves to the mine. For the permits that have lapsed it should not be a major undertaking to re-permit the existing facilities, but this is California. Qualified investor inquiries are welcome."
Now keeping the colourful chart above in mind let's look at the other major, and today, only significant, producer of tungsten ore in North America, Canada's North American Tungsten [TSX-V:NTC]. The predecessor to today's reorganized North American Tungsten was literally driven into bankruptcy by low tungsten prices and environmentally driven regulatory costs and litigation costs in the early 2000s. Interestingly, it was when the predecessor company went bankrupt that, with supply reduced, the fundamentals of tungsten, in particular its steadily rising domestic demand in the PRC, caused the world price to literally skyrocket. A January 2005, investment in tungsten metal would have been worth as much as five times that just one year later! Compare that with gold in the same time period.
Some commentators who have been called paranoid by Wall Street analysts say that North American Tungsten's early 2000s bankruptcy was caused by predatory pricing by those who had most to gain. But predatory pricing, i.e., dumping material into the U.S. or Canada in order to lower the price so that a local producer goes out of business, is illegal in the U.S. and Canada. It is not illegal in China, at least when done somewhere else, some have pointed out.
In any case the good news for end-users is that North American Tungsten has risen from the ashes, due in part to the skyrocketing price of tungsten, a risk that the predatory pricer must take, and has consolidated tungsten mines in its region and is again producing. An excellent presentation of the company and its future plans was given at the last month. The presentation can be found on the company's website. Please read it.
The economy of the 'minor metal', tungsten, can be looked at as a classic zero-sum game, someone gains and someone loses in strict proportion. The tungsten market at the same time illustrates the woeful, probably ignorant, misunderstanding of the economic consequences of sledgehammer decisions where fine scalpels are needed by the cult-like anti-mining environmentalists in the United States and Canada.
No better illustration of this need be sought than the tremendous wealth (and industrial power) creation, which has been gifted to the PRC just from that slice of unintended-consequences of economics that has come about from the political organization and action of self-righteous, elitist, economically ignorant individuals who have shut down the American tungsten mining industry and have therefore given the PRC, and which has no regard for their cause, and, in fact, shows its contempt for it by demanding, even now in warm sunny Bali, to be 'excused' from global economic constraints due to its 'emerging nation' status, free rein to corner the market and consolidate their domestic tungsten mining industry into the world's overwhelmingly (nearly 85%) dominant supply base for the metal.
Since activist environmentalism, which, for example, measures Chinese deaths from unsafe mining practices as of no consequence while any injury, much less death, at a supervised, Occupational Safety and Health Administration (OSHA) and U.S. Environmental Protection Agency (EPA)-regulated mine in the U.S., 'diminishes' them, even though the Chinese coal industry, for example, has as many work related deaths per day as the U.S. industry typically has in a year. We have no Chinese statistics on tungsten miner's health, but it would be a cruel joke to compare those statistics with those of the typical Canadian or American mine worker. But, don't worry; we get to compare Chinese human lives and health with the 'danger' to desert (Inyo County, California) populations of snakes and insects and to animals and plants in the remote areas of Canada's west and Yukon Territories.
In both places, by the way, the only new jobs created for the 'locals' other than tour guide or hunting guide in the last 10,000 years have come from mining, but I agree that this may well be the case also in rural China. Oh yes, and I have been informed by an irate commenter that in both places the water would be polluted by the insidious 'processing' of the ore. No one, certainly no environmental activist, seems to have taken into account that the improvements in health due to the mining companies paying to develop potable water sources for their employees is a benefit of almost incalculable value to those who have drunk from naturally contaminated wells, springs and rivers for generations and died of typhus and cholera as well as metal poisoning from these 'natural' sources of water.
So, environmental activism, itself, in the U.S., not actual death, injury or irreversible damage to fauna or foliage, has become a main driver of wealth creation for the Chinese tungsten industry. Chinese central planners were convinced by their economists, specializing in strategic planning for long-term industrial growth where the 'minor metal' tungsten was far too important to the health of heavy industry, and far too abundant within the boundaries of the PRC, to be left to the mercy of capitalism.
U.S. environmentalism probably actually frightened the Chinese five-year planners, not because they cared in the least for plant and animal welfare over that of people, but because they could see that an unintended consequence of shutting down American mining would be the major impediment it would then cause to the growth of the Chinese domestic economy since it would end the high tech processing of tungsten, which had been developed in the U.S. Worse, they could see that environmental activists in the U.S. did not care about the effect they might have on the U.S. economy. Like America's bankers and businessmen, the environmentalist were myopic when it came to long-term planning; they cared only that the species count not go down in Wyoming not at all about jobs in Wyoming or people needing electric power created from Wyoming coal.
So it may be that the Chinese tungsten industry made a plan to "borrow technology," as Alan Greenspan so euphemistically describes the process by which the PRC has acquired a trillion dollars worth of American industrial technology in exchange for "cheap underwear and car parts." It may well be that during that period before 2005 the PRC's tungsten mining industry was consolidating under the eye of central planners in Beijing who favoured mines that were acquiring the latest foreign mining technology along with industrial tungsten processors who were borrowing the best western technology from foreign partners.
Then when Chinese domestic production, smelting and refining had been yanked up to where it could self sufficiently supply China's domestic demand, without foreign input, the regimen of increased export taxes to make processing of Chinese tungsten for export too expensive and to thus force western companies with such technologies to seek out Chinese 'partners' and transfer their superior technology to them was ratcheted up to make such exports simply uneconomical and divert the material into the domestic market entirely. The central planners of the PRC are convinced that tungsten production in China is already only barely capable of supplying their domestic needs; they have just now restricted ownership of tungsten mines or processing facilities to Chinese nationals only as a prelude, perhaps, to suspending export in the not too distant future.
Ladies and gentlemen living in the North American economy: if we don't get our domestic tungsten mining industry going and expanding right now we are in serious danger of slowing down or stopping our metal cutting, oil drilling supply and mining supply industry for lack of the ability to replace old, and build new tools. We need to get Pine Creek back in operation and support North American Tungsten's operations.
Think about this: We all worry about the U.S. dollar going in free fall down. What if the Chinese renimbi goes in free fall up? The price of tungsten in renimbi won't change but the dollar price will skyrocket. Then the buyers from the PRC can come to Canada and the U.S. and buy all of North America's tungsten ore concentrates produced with some of the dollars they earned by sinking our domestic industry in the first place and then supplemented by domestically smelting and refining the tungsten with the best American technology that we gave them for essentially nothing. This is good economics, not politics. It is what the communist understand best about capitalism; it seems to have no soul. But that isn't true at all; it is just that the current crop of Wall Streeters and Washingtonians are short sighted, greedy and not just conservatives or Republicans.
Please pay attention to our remaining producers of tungsten in North America and follow the news about tungsten juniors. I will do that and periodically report on those I think are promising.