tungsten first 20 ton cash flow fucture growth, page-40

China's big tungsten deposit surprise

by: Robin Bromby
From: The Australian
June 11, 2012 12:00AM



CHINA has sprung another surprise on the resources world -- the claim they've discovered the world's biggest tungsten deposit.

The Chinese seem to have managed an exploration trifecta in the past seven months.

Just before Christmas, China Daily announced the discovery of what it called the largest coal deposit in Asia, initially 89.2 billion tonnes but with a target of 2 trillion tonnes. Then we had announcements of huge shale gas finds.

This latest news, though, is interesting for its timing. The Beijing-imposed suspension of new tungsten mining licences expires at the end of this month. So, as one London analyst commented, "it will be interesting to see how many other Chinese tungsten mines are waiting in the wings".

This discovery of 1.06 million tonnes in Jiangxi province was announced by Xiamen Tungsten, the deposit ascribed a value of $US47.1 billion ($47.4bn). Xiamen Tungsten is part of a consortium which has committed $US314 million to this tungsten search.
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Tungsten has a range of uses from light bulb filaments to strengthening steel for such things as mining drill bits.

Its main attribute is strength at high temperatures, its melting point being 3420C.

It was noteworthy that investors piled into Chinese tungsten stocks listed in Shenzhen and Shanghai after the announcement. They may also have been encouraged by China Minmetals hiking its tungsten price by 2.4 per cent last week to $US20,510 a tonne.

But the other factor in play is that China's tungsten demand is soaring and any sign it can be self-sufficient and not rely on foreign miners in the longer term will be welcomed. It has been estimated Chinese industrial consumption of the metal will rise from just under 30,000 tonnes a year in 2010 to more than 70,000 tonnes by 2020.

For Western and Japanese customers, it is most important that new mines get up and running outside China to overcome any additional export restrictions imposed by Beijing.

China doesn't want to be dependent on the rest of the world; while it might today mine about 80 per cent of the world's output, it cannot, on present mine production, hope to remain self-sufficient given the future demand. And the rest of the world, in turn, is very sensitive to being dependent on China and wants its own self-sufficiency.

Tungsten from China was first an issue in the late 1930s when invading Japanese forces took over swaths of Nationalist China containing mines that had been exporting the metal to the US. The Roosevelt administration desperately pushed to get mines operating at home to produce the metal vital to alloy steels (and the defence industry).

More recently, around 1990, China flooded the world with cheap tungsten, a move that king-hit Western producers and saw widespread mine closures.

The non-China industry is only now getting back on its feet.

Carbine Tungsten (CNQ) recently signed an offtake agreement with Mitsubishi and the first 20-tonne shipment is due any day from its Queensland tungsten operation.

Last year, gold explorer Vital Metals (VML) dusted off its Watershed tungsten project in Queensland after the state-owned Japan Oil, Gas and Metals National Corp got involved. VML has recently been talking to potential Japanese customers.

Wolf Minerals (WLF), which has its tungsten-tin project in England, has just received a cash injection from its two large shareholders, Denver-based Resource Capital Fund and Luxembourg-based metals trader Traxys.

RCF put out a substantial shareholder note on Friday showing it holds 19.9 per cent of Wolf, whose shares rose 6.67 per cent on Thursday and another 6.25 per cent on Friday.

Someone also seemed on Friday to take a sudden interest in King Island Scheelite (KIS), which has completed its feasibility study on reopening tungsten operations on the Bass Strait island. KIS stock rose by 11.7 per cent on Friday to 10.5c on no news. This company will have cash costs of $169 a tonne unit (equivalent to 10kg of metal); last year ammonium paratungstate prices topped $US450/mtu.

And Venture Minerals (VMS) will soon unveil the bankable feasibility study on its Tasmanian tungsten-tin project.

Slowdown fears

WE'LL all be hanging on China's economic data this week, even more so after Friday's session on the London Metal Exchange.

Copper was at its lowest since December on fears the news would show Chinese consumption was falling. The red metal closed Friday at $US7295/tonne but no one is discounting a yawning gap down another couple of hundred dollars, the consensus being that the next support level is $US7100/tonne.

Gold, meanwhile, is being tipped to fluctuate between about $US1550 an ounce and $US1600/oz, its weekend close being $US1595/oz.

That's not too bad, but it will be cold comfort at Morning Star Gold (MCO) and its battle to make the old Western Mining underground operation a success story. The Morning Star mine was Australia's largest gold producer in the early 1940s. Western Mining walked away in 1959 with the gold price at an uneconomic $US32/oz -- leaving plenty of the yellow metal deep underground.

The first gold production in more than 50 years has just taken place at the mine.

But someone seems to have placed a curse on Victorian gold projects given that so many of them have either failed or struggled against one setback after another. MCO is the latest to be visited by the hex. Its largest shareholder, which in March provided a credit line of $10m, has suddenly got cold feet and whipped the offer off the table. MCO is spending the long weekend pondering its financing options.

Silver lining

ANOTHER Pure Speculation perennial, Malachite Resources (MAR), had a little better news.

The background is similar to MCO's and the struggle has been as long.

MAR has the Conrad silver deposit near Inverell, NSW. The mine of that name closed in 1957 due to low metal prices (again, leaving much of the silver in the ground) and MAR has been tantalisingly close at several stages to reviving the mine, at one stage in 2009 getting as far as a confidentiality agreement with a Chinese state-owned miner.

MAR eventually decided gold in Queensland was more of a goer, but Conrad is back on the front burner. A mining contractor has taken an option over a 50 per cent stake to see whether it can overcome the extraction difficulties that have daunted previous efforts.

It would be worthwhile: there's 10 million ounces of silver -- along with substantial quantities of tin, lead, copper and zinc.

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The writer implies no investment recommendation and this report contains material that is speculative in nature. Investors should seek professional investment advice. The writer does not own shares in any company mentioned.