Chris Eccelestone from UK research firm Hallgarten posted his...

Chris Eccelestone from UK research firm Hallgarten posted his monthly update. This month featuring tungsten and so history to provide context.

He indicates the recent price spike is based on military demand and the beneficiaries will be those in production, which there are few.



Word of the Year
Who would have thought it? The mining crowd in the specialty metals spaces (and even in some base
metals) now talk more of Washington than they do of Perth and Vancouver. The party that is seen as
Santa these days is not RAB Capital or Crescat but the DLA (Defense Logistics Agency). The mining
chattering classes are worshipping a new god and their mantra is military metals, or attempting to spin
their product as one of this in-demand category.

The problem though is that the DLA is not dumb. It can seemingly see through a pure promoter or
eternal explorer with night vision goggles. They are not fooled by a PEA into thinking that the man
standing at the top of the hole is anything but Mark Twain’s apocryphal liar. The problem is particularly
acute in Vancouver where “pretend is reality” is stock in trade for critical metal juniors. Sorry to tell you
but the DLA wants production or even a whiff of production, not a powerpoint with a picture of a tank
and roadmap to a never gonnabe project beyond the Arctic Circle.

Time to get real and that is a culture shock for this crowd.

Tungsten Returns to its Place in the Sun
If we had to choose a metal to crown as the military metal par excellence it would undoubtedly be
Tungsten for its usage in shells and in armour-plating to resist said shells.

While Tungsten means “heavy stone” in Swedish, its main source since its rise to industrial usage has
been the Iberian peninsula. This produces an interesting history which has relevance today because it is
the back-story to the massive tug of war over Portugal and to a lesser extent Spain during WW2. In this
story lies some good examples of our “supply & deny” watchwords.

Following the invasion of the Soviet Union, Germany became dependent on Portugal and Spain for their
Tungsten supplies, due to its value in producing war munitions. To maintain its neutrality, Portugal set
up a strict export quota system in 1942. This concept of neutrality through equal division of products
supplied to belligerents was different from that of the Northern European neutrals who worked on the
basis of "normal pre-war supplies". However, in January 1944, the Allies began pressuring the
Portuguese dictator Salazar to embargo all Tungsten sales destined for Germany. Portugal resisted,
defending their right as a neutral state to sell to anyone and fearing that any reduction in their German
exports would prompt Germany to attack Portuguese shipping.

Despite the seeming closeness of Franco to Hitler, he was also a fence-sitter and had to do an even more
perilous balancing act, thinking forward to what might happen if he was unequivocally seen as tied to
the Nazis should they not win. At the top end of Europe, Hitler had neutral Sweden blackmailing him
over iron ore supplies and to the East he had to contend with a “friendly” Romania over oil supplies.
Such is the dilemma, writ small, that China will have if it ever decides to go ballistic (pardon the pun).
What makes Tungsten, the key military metal?

 It is used in making bulletproof vehicles, armored tanks, and other kinds of protective
equipment designed to withstand the high-speed impact of bullets. This is due to the hardness
of tungsten. And this property, as well as others, can be enhanced through alloying to yield
stronger composite materials.

 It is used in making armor-piercing rounds. These are designed to pierce through protective
armor and vehicles designed to be bulletproof. Tungsten can tolerate high levels of shock and
does not easily shatter.

 It is used in making high-speed cutting tools. These tools are usually made of high-speed steel,
and they cut much quicker than ordinary carbon steel. Tungsten’s ability to withstand high
temperatures makes it indispensable in fabricating these tools and when cutting at such high
speeds.

 Tungsten is also used in the manufacturing of rocket and aircraft parts. It is instrumental in
manufacturing parts like engines because of the high temperatures they have to withstand.
Tungsten has a high thermal resistance and can withstand high temperatures without defect.
The map on the following page shows that Tungsten has recently awoken from a long static period and
is challenging the highs of this decade.

COULDN"T PASTE THE CHART THAT SHOWS A RISING APT PRICE.




It is worth noting though that these prices are still way below the nearly per MTU of Ammonium
Paratungstate that was achieved in the first half of 2011. Th recent stability makes one almost
remember the days of rip-roaring gyrations with fondness. But then again it was those crazy movements
which killed off most of the players in the space.

There are still a handful of Tungsten producer (and developer) stories out there, but the price
turnaround is relatively recent, and therefore has not attracted the running dogs of Vancouver or West
Perth.

Our Model Resources Portfolio has long been exposed to Almonty, while in recent years we added EQ
Resources, so we are exposed to the two producers. In recent times, we have come to run the slide ruler
over Golden Metals (GMET - shortly changing its name to a more appropriate Guardian Metals), which
despite its name holds the Pilot Mountain Tungsten mine in Nevada, that we had previously covered
when it was in the portfolio of Thor Mining PLC. Now, set free as the prime asset of GMET it represents
the only active developer of Tungsten in the US, which puts it squarely in the target range for DoD
interest, dare we say, largesse.

After being in the doghouse for so long, and having so few players, it is no surprise that this metal has
fallen out of sight of investors and promoters (maybe not a bad thing). The mantra though is production,
production, production and having projects that are on the drawing board and unlikely to leave it does
not charm funding out of the military in ANY country. This sets up a scenario where the non-serious will
hopefully be relegated to a distant second place in the attentions of the markets.