Wolf Minerals sees world class potential in Devon

Devon may not immediately stand out as a location to build a world class mine, but Wolf Minerals (LON:WLFE) believes its Hemerdon project will rank alongside the best of them.

Hemerdon, about 10 miles north of Plymouth, houses the fourth largest tungsten deposit in the world, a decent amount of tin and a smattering of aggregates as a potential by-product.

But it’s the tungsten that is the driver. Classified as a strategic product by the US, China and Europe and as  a “critical mineral” by the UK government due to its use in weapons and by aerospace and energy firms, new sources of supply are dwindling.

It was this potential supply/demand imbalance that initially encouraged Wolf’s managing director Humphrey Hale to take an option on Hemerdon in 2007. 

A lot of work had been completed in the eighties by a previous owner, including getting planning permission for the mine. This is something that has since been updated by Wolf in January 2011 and is valid until 2021.

That planning permission, akin to a mining licence elsewhere, along with a definitive feasibility study published last May, means that much of the uncertainty investors often face in the pre-development stage of a junior miner has already been taken care of.

The study estimated the project’s base case value at £74 million based on a mine life in excess ofnineyears producing 350,000 metric tonnes of tungsten and 450 tonnes of tin each year. Tungsten will generate 90% of the revenues of the project.

While the study was limited by the existing planning permission boundaries, Wolf intends to grow the mineable reserves by applying for extensions to the existing planning permission.

Consultancy group Roskill's long-term price forecasts between now and 2015 are for a tungsten price of about $410 per metric tonne compared to the study’s assumed prices for the grades expected at Hemerdon of US$360. The study assumed a price of about $30,000 per tonne for tin. 

The project was also only delineated to a depth of 230 metres, though exploration has suggested there may be the potential to go down to 400 metres.

For now Hale is just focused on progressing the existing plan, especially after having been told UK mining was “boutique and bijou” and that there was “no way a scalable tungsten mine could be built in Devon.” 

Hale counters that Wolf has a low cost, world class tungsten project that just happens to be in Devon.

This week  he announced another major milestone with a provisional agreement with three leading project finance banks for £55 million of senior debt to fund the project.

That leaves a further £65 million to raise to cover the estimated total cost of £120 million to move it to first production.

Wolf added that it was in advanced discussions with potential offtake partners over a tranche of subordinated debt.

There is no secondary market in tungsten, so future output cannot be hedged and to complete the financing will require offtake agreements for the mine’s output.

The senior debt and potential offtake agreements combined will enable it to minimise the equity component of the funding package, the firm added.

But some equity will be required and one of the reasons Wolf listed on AIM in November was to access the broader mining expertise in London, especially in tungsten which Hale says is not a metal that appeals to everyone.

The group is already listed in Australia, but the project’s proximity and the access to development money were other reasons behind deciding to add a listing in the UK, he says.

Even though it has planning permission for the mine, Wolf still needs approval for a couple of permits for water use and also a permit for the waste dump. Hale is hopeful these will come through by the end of March.

Wolf also has to build a new road to remove a traffic bottleneck as a condition of the mine’s planning permission. Wolf will break ground on this initial infrastructure work in January.

Hale says the reaction of the population in the surrounding area to the plans has generally been encouraging with a lot of local interest, especially as the new mine will employ 230 people directly and an additional one thousand jobs indirectly.

Hemerdon is also situated in  a part of Devon that is used to mining with huge clay china pits adjacent to the site and the historic tin industry just over the border in Cornwall.

People have been mining in the area for 400 years and they understand the process, says Hale.

Shares in Wolf rose by 5% to 17.12p, valuing it about £15 million.