Profitable ??, page-2

From what my trader colleague in Germany told me, a lot of people just assume concentrate is priced 80% of the APT price in Rotterdam. The APT price is supposedly heavily manipulated by the big consumers. What an end user pays for concentrate depends on the supply situation and inventory levels of APT. If there is a lot of APT sitting around that is not moving and too much concentrate around, the price can be way lower than 80% of APT. There are also deductions for contamination and grade. The big customers apparently are ruthless when it comes to the penalties.

We don't know the terms of the WLF agreement with its end users. It may be 80% of APT or thereabouts but be sure there will be penalties and nobody knows what the WLF product looks like. If it is full of crap which tends to happen when a new concentrator is sorting out all of its commissioning issues, the discounts could be significant. The other 20% of the WLF output that does not appear to be spoken for has to either be stockpiled which will push the price down or sold at the same price as every other concentrate contract.

Consultants and advisors can forecast prices according to the clients needs but there is not much to suggest tungsten prices will magically rebound. Nuphao in Vietnam is making 6000 tonnes of new tungsten per annum now, there is concentrate coming out of Africa and Russia, the Chinese export tariffs have ended, China has massive swing producer capacity, and there is more than 30,000 tonnes of APT sitting in warehouses in China.

The story is unfolding now and the speculation can end as there is now operational performance to judge. The early promotional talk of $100 production costs have been eased to $120 "cash costs" and $170 "all inclusive costs". One would assume those cost projections are based on full production capacity and the plant meeting its design criteria. Expect big losses for at least the next few years and possibly longer. Judge by the financials they are compelled to publish, don't shoot this messenger for being realistic!

At 220 apt price, the best WLF can hope for is 176 for its con if it meets the specifications under the contract. If it is not producing at its stated full capacity, there is no way profit can be generated and the cash flow from operations would barely be break even.