King Island Scheelite Limited (ASX:KIS) has entered into an offtake agreement for tungsten concentrate from its high-grade Dolphin Tungsten Project on King Island in the Bass Strait north of Tasmania.
Under the deal, 1,400 tonnes of tungsten oxide (WO3) or 2,200 tonnes of concentrate will be delivered over a four year period to Austrian company Wolfram Bergbau und Hutten AG.
The price to be received for the concentrate is referenced to the ammonium paratungstate (APT, contains 88.5% WO3) price as quoted by Fastmarkets MB.
At full production, the redeveloped Dolphin Mine is expected to produce about 2,000 tonnes of WO3 per annum, contained in 3,100 tonnes of concentrate.
This means the offtake with Wolfram represents about 20% of its annual production.
Crunching the numbers
The 1,400 tonnes of WO3 is equal to 140,000 metric tonne units (mtu), and the APT price is currently in the range of US$265-285 per mtu.
Traditionally, concentrate producers receive between 75% and 80% of the quoted APT price per mtu.
Taking the midpoints of US$275 and 77.5%, the offtake has a gross value of about US$30 million or A$42 million.
Tungsten price expected to rebound
This offtake agreement value will move with the price off tungsten which is predicted to rebound in coming years.
Renowned global resources consultant Roskill has said: “Global tungsten markets are returning to growth following several years of oversupply and low prices.
“Tungsten market fundamentals have changed as demand from defence, industrial, and oil and gas applications has picked up, just as environmental policies in China have curbed supply and added cost pressures for producers.”
King Island’s chairman Johann Jacobs said: “It is extremely pleasing to have attracted the internationally renowned Wolfram Group as our first customer, in what is a highly competitive market.”
Regarding pricing, he added: “The price of APT has stabilised over the last few months and is starting to firm following the implementation of environmental policies in China and the continued growth of world economies.”