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In the news with RFC Ambrian: Wolf Minerals Limited

Published: 11:42 18 Sep 2015 BST

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INTRODUCTION

In the news: Wolf Minerals

Jim Taylor went down to Dartmoor yesterday for a party. The reason for this was to celebrate the opening of Wolf Minerals’ (LON:WLFE) Drakelands mine, which has started production of tungsten. This makes Drakelands the first new metal mine to open in the UK for over 40 years. These are exciting times for the UK mining industry. Wolf has started, Sirius Minerals has got its permits, Dalradian is getting good traction and our own West Cumbria Mining is going great guns proving out its coking coal project near Whitehaven. Even Jeremy Corbyn has said that he wants to re-open all of the UK’s thermal coal mines (albeit that this could be subject to a ‘change of mind’ now he has some grown-up responsibilities).

Jim stayed at a place called Baskerville Hall. He tells me that the moor was shrouded in a deep mist, which was eerily lit by a full moon. There was a bit of a kerfuffle after a tired and emotional analyst from a rival Canadian brokerage chose to go out for a midnight stroll and a baying hound’s ghostly howling then woke all the guests in the house. He never returned. Sounds like fun. You can read his comments on the day below.

METALS & MINING EQUITIES

WOLF MINERALS — Drakelands Official Mine Opening — The dual ASX- and AIM-listed tungsten producer has officially opened its Drakelands mine in south Devon, a well-attended event at which we were fortunate enough to be present. The tagline for the event was that this is “the first metal mine to be opened in the UK for 45 years”. This was a significant event for the UK’s south-west and a proud moment for those who put this project together and helped to bring it to production.

The operation is big, with the potential to supply 5% of global tungsten demand and around 20% of western mine supply. Tungsten has a unique set of properties: it is the hardest metal and its melting point is on a par with the sun! It is also heavier than gold.

Potted History

Wolf Resources acquired the project in December 2007 and completed a DFS 3.5 later (in May 2011). Off-take arrangements were signed in April 2012 and credit approvals for £75m of debt were received from Unicredit, ING and Caterpillar Finance in November 2012. This paved the way for RCF to provide a US$75m bridge facility and for the company to raise A$20m in equity, largely from the Todd Corporation, before the end of 2012.

Having received final environmental permits in December 2013, the company commenced construction in February 2014 and then raised £99m at A$0.30/16.3p/share, repaying the RCF bridge and providing the equity for the project’s development. The first draw-down of the debt was made in September 2014. Wet commissioning was reported to be underway in June 2015, 16 months after the commencement of construction, and first concentrate was produced at the end of August 2015. The project is in the final stages of commissioning and we expect that the EPC contractor, GR Engineering will soon hand over the operatorship of the project to the company.

Project as Described in DFS of May 2011

The operation is focused on the exploitation of a stockwork of wolfram-bearing quartz veins that are hosted in a granite intrusion. The DFS was based on the exploitation of a Measured and Indicated resource of 0.14% WO3 and 0.02% Sn, within which reserves were estimated at 27Mt grading 0.19% WO3 and 0.03% Sn.

The operations were planned to operate on a 5.5-day week and produce 3,500tpa of WO3 in concentrate. Operations comprised an open-pit mine feeding 3Mtpa of ore to the plant over a nine-year life. The mine benefits from a low waste-to-ore ratio of 1.5:1 over the life of the mine.

The plant is outwardly simple, being based largely on gravity separation using spirals on the finer material and two-staged dense media separation on the coarser material to upgrade the product to around 40% tungsten. The process then uses a couple of additional processes to remove unwanted arsenopyrite and iron from the product to upgrade it further to the final product grade of 65% WO3 and to produce the by-product tin concentrate that grades around 40% Sn.

The 40% concentrate is first reground and then flotation is used to remove arsenopyrite, before being dried and then roasted to convert the (non-magnetic) hematite into (magnetic) magnetite. This allows the iron mineralisation then to be removed using low intensity magnetic separation. Finally, high intensity magnetic separation is used to separate (mildly magnetic) tungsten from (non-magnetic) tin.

Planned recoveries from the weathered material that makes up the plant feed during the first 2-4 years of operation are 58%, which are planned to increase to 66% once mining is undertaken from the fresh rock.

The capital cost of the project was estimated at £104m (US$169m) and average life-of-mine operating costs (including sustaining costs) were estimated at US$122/mtu (metric tonne unit (mtu) = 10kg).
At the time of the study, the tungsten price was US$460/mtu of Ammonium Para Tungstate (APT), which is the most commonly traded tungsten product. The economic evaluation was based on a long-term price forecast of US$360/mtu. The company expected to receive 80% of the value of the WO3 contained within the concentrate to account for the costs associated with converting the concentrate into APT. The resulting ungeared NPV8 was £74m, or US$121m, with an IRR of 21%.

Subsequent Changes to the Project Scope

Significant changes to the project include the likely move to a seven-day working week on a permanent basis and a 34% increase in reserves. We also note the fall in the tungsten price since the completion of the study.

In March 2015 permission was granted to operate the mine on a seven-day week for a trial period of six months. Assuming that this does not result in any (noise-related) issues in the local community, the operation will continue on a seven-day basis. This will lead to an increase in the project’s throughput to 4.2Mtpa and an increase in forecast output to 5,000tpa of WO3 in concentrate and to an expected reduction in unit costs.

Also in March, the company announced an increase in reserves to 35.7Mt grading 0.18% WO3 and 0.03% Sn as a result of the planning of steeper pit walls, adding three years to the mine life. The company also noted that the mine life could be extended further if planning permission is granted to increase its footprint.

Like many other commodities, tungsten prices have fallen over the past couple of years. Current prices are reported to be around US$200/mtu, some US$160/mtu below the base case pricing in the feasibility study of 2012.

Finances

At the end of June 2015 the company had A$34m in cash and A$122m in debt.

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