Tungsten prices moved up marginally last week from a spread of between US$175-to-US$180 per metric tonne unit (mtu) to a spread of between US$180 and US$190.
Could this movement be the start of a much larger upswing that will take the tungsten price away from its recent multi-year lows and back into much more positive territory? - hard to say, and given that the slowest month of the northern hemisphere summer is about to get under way, perhaps a bit premature.
But such a move is coming, as any intelligent reading of the current dynamics at play will tell you, and when it comes those that have tungsten projects ready to go will be the ones that benefit most.
Ormonde Mining plc (LON:ORM) is such a company, fully-funded to bring its 30%-owned Barruecopardo tungsten project in Spain into production over the next couple of years, and now really only waiting on finalisation of one or two bits of Spanish administrative and legal procedure before it breaks ground early in 2017.
And chief executive Steve Nicol and chief financial officer Paul Carroll are convinced that the timing will be propitious.
“We’ll be commissioning at the back end of 2017,” says Nicol, “at a time when tungsten is set to be picking up. There’s been a bit of oversupply in China, and a bit of illegal and unauthorised production in China.”
But that’s all changing now. The larger producers have agreed to make cutbacks, and the illegal mining is being stamped out.
“That’s going to feed into a tightening of supply,” continues Nicol. The big question will then be: who will meet that growing demand as supply tightens? In fact, as Nicol points out, with tungsten demand directly correlated to global GDP, there will soon come a point when the market needs a new Barruecopardo to come on stream every year just to remain in balance.
That, clearly, isn’t going to happen. But it’s that sort of thinking that’s driving the longer-term plans of Ormonde, together with its project partner, to move to underground mining at Barruecopardo and also, eventually, out to satellite projects in the surrounding district.
Ormonde’s major funding partner, US$100 billion dollar private equity outfit Oaktree Capital, has already agreed that more than US$3 mln of the recent US$99.7 mln funding package can go towards drilling and studies designed to extend the mine life.
These guys are in tungsten in a big way, and they are in it for the long haul.
The first step though, will be to get the mine built. With the money in place, this appears to be self-evident, with the minor proviso that certain legal procedures still need to be gone through in regard to securing full access to the remaining lands.
Steve Nicol has lived and worked on the ground in Spain for many years now, and he’s helped ensure that every local who can prove title has been brought to the table and settled with in a fair negotiating process. The only trouble has come when title has been in doubt. In these circumstances it’s difficult to deal with anyone.
But luckily, the Spanish legal system has a way round this. The Barruecopardo project was recently the subject of a favourable vote in the legislative assembly of the Region of Castile y Leon. As a consequence of this democratic intervention what’s known as a Declaration of Urgent Occupation has been issued as part of the compulsory acquisition process, allowing the ability, following payment of a bond for the estimated value of the relevant land, to access the land in question and go to work on it, on the understanding that should ownership ultimately be proved fair compensation will be available.
Not only does this vote from the Regional Assembly allow the company to proceed, subject to one or two further procedural steps, but it should also be seen as a ringing endorsement of the company and its plans by the Region’s local representatives.
“The issue was slowing a project down that was in the public good,” says Nicol, referring primarily to the hundreds of jobs that will be created at Barruecopardo.
And it’s worth noting here that a key difference between Ormonde and EMED Mining, the latter being a company that famously came unstuck over land ownership and rights in Spain, lies in this Declaration of Urgent Occupation.
EMED never had one. Ormonde does. And what’s more, Ormonde has all local landowners on side. If there is any attempt to block development at Barruecopardo it will presumably come from outside. And given the vote in the Regional Assembly, would appear unlikely to be successful.
So the plan is to put the remaining procedural and legal points to bed and move towards construction and production next year.
The idea is that Barruecopardo will produce 260,000 mtus per year over a nine year life. But given the likely tightening in the tungsten market, an option to increase that output would be welcome. Simple, says Paul Carroll – the company can move from a five day a week production schedule to a seven day a week one with no additional capital cost, increasing production to over 360,000 mtus per year, pulling cashflows forward and increasing project valuations.
Steve Nicol concurs. “We can expand the process plant even further with minimal capital,” he says. Give that the company is well down the global cost curve, expansion would offer considerable economies of scale. The ore is easy to process, doesn’t need to be ground, and won’t require storage in tailings.
With a US$3 mln budget allocated for proving an early stage phase 2 underground mine, and with significant land holdings which include areas where previous tungsten mines have operated, the potential to add further value is clear.