Ormonde Mining: Analysts excited by Barruecopardo tungsten project

Ormonde Mining’s (LON:ORM) Barruecopardo project has come at an exciting time according to research by City broker Fairfax Securities.

This morning Ormonde revealed that it has now applied for the mining concession for the proposed tungsten mine in Salamanca, western Spain.

"The submission of the application for a Mining Concession is a major milestone in our roadmap to tungsten production at Barruecopardo by late 2012,” managing director Kerr Anderson said this morning.

The project, which has a total resource of 10.9 million tonnes grading 0.45 percent tungsten, is Ormonde’s primary focus and it is made all the more important by tungsten’s status as a ‘strategic metal’ in the European Union.

The junior mine developer is on course to have Barruecopardo up and running by the end of 2012, initially mining 500,000 tonnes of ore per year after a steady ramp-up.

The stock advanced by almost 6.5 percent in Thursday’s early deals, reaching 10.25 pence per share.

Marc Elliot, mining analyst at Fairfax, upgraded his target price substantially after the news - moving it from 15.6 to 19 pence per share. He highlighted the company’s progress and his extremely robust outlook for tungsten prices.

“(Ormonde has) been able to pick up pace with the development at Barruecopardo. 

“This has come at an exciting time as the fundamentals for the tungsten market are extremely robust with output from the world’s largest producer, China, constrained, and western consumers increasingly concerned over security of supply making a Western tungsten mine an increasingly attractive and potentially a strategic proposition.”

The analyst notes that tungsten prices rose from around US$200 per tonne to over US$300 per tonne in 2010.

China controls about 77 percent of global tungsten supply, consequently securing new sources of the essential metal is a top strategic priority for Europe. Furthermore the metal’s price continues to rise, fuelled by the tight squeeze on supply.

According to Elliot, Barruecopardo’s production will average 155,000 metric tonnes of tungsten per year, and once it is operating at full capacity it will produce around 230,000 tonnes per year - treating around 800,000 tonnes of ore each year.  

The analyst’s projections show the mine to be very profitable with even its lowest tungsten price assumptions equating to operating margins in exceeding 60 percent.

“We have also used conservative tungsten prices of US$261 per tonne long term, current market prices are in excess of US$330 per tonnes as the fundamentals for the metal are particularly robust, consequently there is significant upside to our valuation target.  

“Even at our lower tungsten price assumption, operating margins are expected to average above 60 percent.”

Ormonde also updated investors on the group's progress on the ground, where infill drilling is ongoing on the southern part of the Barruecopardo deposit.

Samples have already been taken from the holes and some assay results are expected in the coming weeks.

On a technical level, our infill drilling programme continues, with results from the initial holes expected in the coming weeks".

Ormonde has also dispatched the bulk sample – which will be used for confirmatory metallurgical testing – to the laboratory.

Once complete, the testwork results will allow Ormonde to begin the definitve processing design work for the mine processing plant.

“We look forward to the results of the work currently underway as we enter an exciting period of development for Ormonde at a time when there is growing demand for tungsten projects,” Elliot added.

“Barruecopardo also has the added benefit of being a historical mine which has previously produced known and highly desirable tungsten concentrates.  

“The fact that the mine is located in Spain is another positive for the project as Spain provides an attractive fiscal environment for miners, which includes certain tax allowances, government grants at the capital expenditure stage, and no royalties.”

Elliot was not the only analyst to pick up on the important news.

Job Langbroek, analyst at Dublin-based broker Davy, said the application represents a significant step forward and he emphasised the projects promising economics.

The analyst believes that finding new secure sources of tungsten has become a market imperative and Barruecopardo could supply up to 8 percent of global tungsten demand.

“Its relatively low cost and its location in Europe make the Barruecopardo project an ideal candidate to meet any supply shortage in the coming years,” Langbroek said in a note to clients. 

The analyst adds: “We have for some time felt that Barrueocopardo is the best undeveloped tungsten project outside of China. Recent tungsten pricing provides a catalyst for the market to recognise this,”  

“Importantly, Ormonde also has a number of interesting grass roots gold plays and also has a joint venture agreement with Antofagasta covering its copper assets in the Pyrite belt. 

“We value the group at 18 pence per share with the largest part of this (16 pence) made up of the tungsten play, albeit using pricing well below current market levels (US$255 per tonne versus $335 at present).