Market cap ~$70m @ 35c, cash @ 30 Sep $3.4m, debt $10.7m, ADV...

Market cap ~$70m @ 35c, cash @ 30 Sep $3.4m, debt $10.7m, ADV 67k

Argonaut recently visited WLF’s Hemerdon tungsten / tin project in Devon, south west UK. The site is a ~4 hour train ride from London to Plymouth (population 250,000), followed by a ~15 minute drive to the site.

In summary, Britain’s first metal mine in 45 years is real. The project is fully financed and construction ready once the “Waste Facility Environmental Permit” is granted. WLF is planning to process 3Mtpa of ore from 2015 to produce ~350,000mtu pa of a 65% WO3 concentrate and ~450tpa of tin in concentrate. The initial mine life is 10 years.

Takeaways from the visit:

• Surrounded by mining – The local community is accustomed to mining with China clay pits covering a large area immediately to the north, and Hemerdon itself has seen small scale mining during WWI and WWII.

• People – New MD Russell Clark is well credentialed to transition Hemerdon into production, and on the ground Jeff Harrison (UK Operations Manager) brings valuable local experience as the former Operations Manager at the neighbouring Lee Moor operations.

• Existing infrastructure – Excellent with existing sealed roads, grid power and water available for processing.

• Property acquisitions finalised - All 15 requisite properties have either been purchased or have contracts-to-purchase entered into.

• Simple geology – Essentially a large granite body amenable to bulk open pit mining methods.

• Major contracts secured - GR Engineering (GNG AU, BUY) awarded the EPC, CA Blackwell awarded the Mining.

• Scale – Current Reserves of 26.7Mt @ 0.2% WO3 and 0.03% Sn, 117Mt in Measured and Indicated Resources, significant mine life upside with the deposit open at depth and along strike.

• Product logistics – Simplified by the small quantum of concentrate output i.e. shipped by container at ~100t per week.

• Margins – Operating costs US$105/mtu* (2011 estimate, after tin credits) v last APT “ammonium para-tungstate” price US$377/mtu (Bloomberg, Metal Bulletin).

*1mtu = 10kg

Surrounded by mining


Source: WLF

The capital cost (2011 estimate) is £104m. Debt financing comprises a 12 month secured US$75m Bridge Facility with RCF, and £75m Senior Debt with ING / Unicredit / CAT Financial.

With the highest melting point and highest tensile strength of any metal, tungsten demand is unsurprisingly dominated by steel hardening applications (~60% in tungsten carbides – predominantly used for cutting, grinding and drilling). Supply and demand fundamentals are favourable. Independent researcher Roskill forecasts global demand growth of 6-7% p.a. to 2016 co-incident with limited new supply (until Hemerdon commences). Despite a plethora of juniors proffering tungsten projects, most are relatively early stage and running low on cash. Capital costs present a substantial barrier to entry, exacerbated by the current limited availability of funding. For example, Hemerdon will achieve supply capacity equal to ~3.5% of global demand for £104m (2011 estimate).

Pricing risks are as per any small (~100ktpa WO3), thin, relatively opaque market. The dominance of China, especially on the supply side (>80% global supply), also needs to be acknowledged. However China is currently a net importer, with the Chinese Government tightening restrictions on exports. Large Resources located outside of China are considered to hold strategic value.

Off-takes are in place for 80% of the tungsten concentrate for five years to two leading processors – U.S. based GTP and Austrian based WBH. Pricing for the 65% WO3 concentrate will be calculated based on the prevailing APT price with a discount applied to take into account treatment and refining costs. Tin marketing is with Traxys.

Substantial shareholders are RCF 36.4%, Todd Corporation 19.9% and Traxys 9.3%. Royalties include 2% to RCF and 2% to local landowners.

WLF is “leader of the pack”, set to break ground at Hemerdon and become the world’s next significant tungsten miner.