Wolf Minerals (WLFE.L/AIM/£147m) – cool name, good site visit...

Wolf Minerals (WLFE.L/AIM/£147m) – cool name, good site visit
Wolf Minerals owns and operates the Hemerden tungsten mine development in Devon. Hemerden is the world's 3rd largest tungsten deposit. It is fully permitted, funded and is set to be in production on time and on budget by this August. As such, we thought it was worth finding out a bit more. Key points:

• Tungsten, an extremely heaving metal, is critical to industrial and agricultural production (particularly tooling) and has no substitute. Demand continues to grow ahead of global GDP and increasing supply the equivalent of one new Hemerdon project per year is required to meet this.
• The production process at Hemerdon is straightforward and well-established and the mine is an open pit, so there is little technical risk.
• The Board is comprised of highly experienced mine developers including NEDs Nick Clarke (CEO of Central Asia Metals) and Don Newport (head of Standard Bank's Global Mining Finance division). All of the executive mine managers are UK based – so another tick in the box.
• At today's tungsten price of $295/Mtu ($29,000/t) the Hemerdon project will provide annualised revenues of $100m (at 3,500 tonne target throughput). All In sustaining costs, including debt servicing, are $170/Mtu, leaving a net margin before Plc costs of 42% or $42m. The aim of the Board is for the stock to quickly become a dividend payer.
• There is potential for revenues to be brought forward if local permission is granted to run the mine 7 days a week instead of 5, and a decision on this is expected soon. Annual production would then increase from 3,500 to 4,200 tonnes pa and economics would improve due to the lack of unnecessary stoppages.
• The base case economic plan gives a mine life of 10yrs, which may be extended if and when additional planning permission is granted.
• The project is in the mid-range of global producers in terms of grade but towards the bottom end of the cost curve due to the existing local infrastructure and open pit mine design.
• The £123m project cost has been fully funded through to first cash flow through debt and equity, with an extra £5m unallocated cash in Australia for buffer. £75m senior project debt is repayable over 5 years from first production ($13.63m pa), which at today's tungsten price leaves plenty at the end of the day for equity shareholders.
• Fixed volume, 5 year off-take contracts have been secured for 80% of production, though management are confident in selling 100%.
• In terms of timeline, feeding ore to plant will be from June 2015, whilst handover to Wolf from the building contractor is expected on the 8th August 2015, then ramp up from 50% to 100% throughput by Feb 2016. First delivery of concentrate is expected September 2015.

All in all, this looks like an exciting and low risk project offering good value despite the recent spike in the share price. The stock is currently tightly held with strategic investors Resource Capital Fund, the Todd family and offtakers Traxys - holding c.80% between them. However, for those who can take small positions, this looks like one to BUY into.