FYI HCs Carbine Tungsten 11/03/2015 FAT-MIN-463 CNQ AUD $0.120...

FYI HCs

Carbine Tungsten

11/03/2015  FAT-MIN-463

• CNQ

• AUD $0.120
• Speculative​
• HIGH​
• 

Moving through the final steps to a loan drawdown

To finalise the loan transaction, Carbine Tungsten is currently completing all the conditions precedent in its agreement with Mitsubishi Corporation (Mitsubishi). With the completion of these conditions and the finalisation of the loan documentation, Carbine Tungsten will progress to developing the first phase of its Mt Carbine tungsten project. The following figure shows the location of the company’s Mt Carbine project:

Source: Carbine Tungsten
Patience is now required as the two parties move to complete the loan transaction and the company can secure the US$15 million in funding. To this end, the company is in the final stages of completing the conditions precedent and expects to finalise these in the month ahead.
Mitsubishi will secure a 2.7% equity interest at the project level in the Mt Carbine project.
To expedite revenue, the phase 1 development of the Mt Carbine deposit will involve the company mining the ore stockpiles accumulated from the old mining activities conducted on site. The application of modern mining techniques will allow the company to recover the tungsten still remaining in the old ore stockpiles.
The stockpiled ore is expected to support a mining operation with an initial annual capacity of 1.5 million tonnes of ore per annum to produce approximately 78,500 metric tonne units (mtu, a mtu is equivalent to ten kilograms of tungsten) per annum of tungsten. Stockpile mining will finally ramp up to 157,500 mtu at 3.0 million tonnes of ore feed per annum. Stockpile mining is anticipated to commence in 2015 and carries a capital costs of A$15 million.
The Mitsubishi funding comes with an offtake consideration for 80% of the tungsten produced from stockpile mining and 50% from the open pit or hard rock mining. The off-take does provide sales certainty.  
The company also continues to advance its technical and commercial plans for the open pit development phase of mining at Mt Carbine. The company is in advanced discussions with interested third party offtake partners for the remaining 50% of the open pit production.  
Detailed preparation work is also underway on the engineering plans for stockpile mining, with discussions now taking place to appoint a construction management firm.
The final plan for Mt Carbine is that it will host a plant capable of processing three million tonnes of ore per annum, to produce 261,550 mtu of tungsten per annum. Operating costs have been estimated at A$137 per mtu, with a development cost of A$55 million. With tungsten current trading around US$33.50 (A$44) per kilogram, operating profits remain very satisfactory. Based on the definitive feasibility study price for tungsten of US$290 per mtu and a discount rate of 8%, the project generated a net present value (NPV) of A$161 million with a payback period of 1.5 years. The investment matrix improves with the current price of tungsten at a US$335 per mtu.
The company has identified two other prospects in proximity to the Mt Carbine mine, in Iron Duke and Petersen’s Lodes. The following figure shows the region around Mt Carbine showing both the Iron Duke (green) and Petersen’s Lodes (pink) prospects:

Source: Carbine Tungsten
Both the Iron Duke and Petersen’s Lode prospects are not included in the current exploration target or resource numbers for the Mt Carbine project.
Mineralisation at the Iron Duke prospects has an average true width of eight metres with an average grade of 0.32% tungsten. Mapping of the deposit at iron Duke indicates a strike length 2.2 kilometres. The company plans to drill out Iron Duke during 2015. A major find of tungsten at Iron Duke will significantly change the investment matrix of the Mt Carbine project. We are however cognisant that the company with Mt Carbine alone has a viable operation. The current focussed view the company has on Mt Carbine to get it to production is paramount. Iron Duke will not go away, while Petersen is a project for the back pocket at the moment.
At 31 December 2014, the company had a cash resource of A$1.1 million. The estimated cash budget for the current quarter is forecast to be A$500,000, with A$350,000 earmarked for development activities. We consider the company is adequately resourced to complete all its current undertakings. Certainly, the injection of funds from Mitsubishi will significantly improve the company’s cash position.
With the funding agreement signoff, the company reached a major milestone in the development of its Mt Carbine tungsten project. Drawing the funds and commencing development activities will be the next major near-term value catalyst for the share price.

The company is a speculative junior tungsten explorer/developer, holding tenements over what was once Australia’s pedigree tungsten resource. Results from exploration and development activities, including processing have to date been highly encouraging and indicate the potential for a viable tungsten operation at Mt Carbine. The sign off of a loan from Mitsubishi Corporation following the completion of its due diligence is a major comfort factor toward de-risking the Mt Carbine tungsten deposit. We believe further de risking in the share price will occur as the company advances toward phase one production at Mt Carbine.
Consequently, we recommend Carbine Tungsten as a buy for Members with no exposure to the stock.