Tungsten is incredibly tough, very heavy and melts at extremely...

Tungsten is incredibly tough, very heavy and melts at extremely high temperatures.

Most people know of it for its use in darts, light bulbs, weapons or cutting tools.

It is also relatively rare and it is this scarcity, alongside the metal’s hardy attributes, that point to a bright future for Wolf Minerals' (ASX:WLF, LON:WLFE) new mine at Hemerdon in Devon.

Demand is rising, by about 4% per year, but supply is falling.

China is the current source of over 80% of tungsten production, but grades here are weakening and the government is squeezing exports to meet internal demand.

The US’s strategic stockpile is also running down fast and a mine of Hemerdon’s size will soon be required to come on stream every year just to keep up with demand.

First tungsten production from Hemerdon is scheduled for around this time next year and progress so far suggests Wolf is well on target. To get to where it is currently is also a hugely impressive achievement by the company.

The new mine is just six miles from Plymouth and on the edge of Dartmoor. It will also be the first new mine to open in the UK for 40 years and to get a mining permit in the south west of England was no mean feat.

Hemerdon will also employ more than 200 local people when running at full tilt, but Jeff Harrison, operations manager, emphasises how much effort the company made to involve the community and accommodate the local wildlife.

Hotels for bats, dragonfly ponds, walls rebuilt for lizards. It seems no stone, literally in some cases, has been left unturned to keep upheaval to a minimum.

For those on two legs, half a million trees are expected to be planted by the end of the mining life, while a new link road and bridleways have been built.

Harrison says this has not been cheap, especially buying the Dartmoor-adjacent horse paddocks, but the consultation process worked well.

The smooth progress helped with the permitting, he adds, and clearly impressed the financial community. In June, Wolf raised £105 mln through new equity at a time when the purses were shut for many small cap miners.

A visit by Proactive Investors to the site confirmed that the money is now being spent.

Waste stripping of the pit area is in full swing, with the removed earth used as the base for the tailings facility. The wolframite veins in the granite ore body are already clearly visible.

The ore processing section has grown up fast from the bare earth and now resembles a skeleton of steel structures and cylindrical tanks.

The original spec for Hemerdon was to produce around 345,000Mtu (about 3,500 tonnes) of tungsten and about 400 tonnes of tin each year. That is still the plan, with the first metal concentrate expected around July 2015.

Tungsten is a component of wolframite that, due to its weight, is then released through a relatively straightforward myriad of gravity separation and screen treatment processes.

At present, Wolf has planning permission for a ten year life of mine. The existing proved reserves are 27mt of wolframite at a decent grade of 0.19%.

The total measured and indicated resource is significantly larger at 117.1Mt.

An area to the south of the planned pit could add 2-3 years to the life of the mine, while Wolf eventually may go underground.

A depth of 200 metres is the mine plan at the moment, but there is potential to go down to 400m and potentially deeper.

This is on the radar but not a priority at present, said managing director Russell Clark, as both of these expansion options would need additional planning permission.

However, steps can take to improve the mine’s economics without the need for more permits.

One is to steepen the walls of the mine pit shell to reduce the amount of waste extracted as the mine goes deeper.

The mine plan currently is based on a conservative shallow design, but six holes have been drilled to test a steeper decline, which would make a sizeable impact on production costs.

Production forecasts are also based on 5.5 days a week working of 24 hours a day, but eventually permission for continuous seven day working, 24 hours per day, may be granted.

Cash costs currently are estimated at US$109 per mtu tungsten, which includes a US$20 tin credit.

The total capital cost of the project is £123mln, all of which is now comfortably covered by the new equity and a £75mln debt facility.

Offtake agreements, meanwhile, have been signed with GTP and Wolfram Bergbau for 80% of production.

As well as becoming more efficient, the pricing potential for tungsten itself offers intriguing upside potential.

Without additional supply, the price is already being tipped to rise to US$450 per mtu by 2016 from around US$340 per mtu currently.

By then, Hemerdon will account for between 3-4% of world tungsten production.

Wolf adds the economic model does not rely on a rising tungsten price to work, and project margins are healthy enough now.

Even so, it may come on stream just in time to capitalise on a new high price environment, which would be no bad thing for either the mine or Wolf’s share price.