In a period where not much news has been positive of late, it has been striking to see a string of junior mining companies releasing highly encouraging economic studies on a variety of projects.
All in a day’s work, you might say.
Yes – under normal circumstances.
But with inflation riding high around the world, and by several different measures, and with supply chain bottlenecks causing uncertainty all over the place, putting together the economic models for a new project is far from simple.
Which is why, first thing’s first, Tungsten West’s new study for the long-troubled Hemerdon project was so encouraging.
Hemerdon’s legacy issues date back to processing decisions taken by former owner Wolf Minerals, and Tungsten West, over a couple of years had managed to put most of the issues right. What it hadn’t bargained on, though, was Russia’s invasion of Ukraine and an oil price that went up to well over US$100 and resolutely stayed there.
Any project that relies on significant use of diesel all of a sudden found itself living in a new world when those Russian troops rolled over the Ukrainian border.
Tungsten West moved fast.
The old project numbers were out. New ones would be provided, and as a matter of urgency. And now, just a few short months later, they are here.
The short version is that the project has been scaled back – there will be fewer ore sorters, the dense media separators will be second-hand, and the overall use of fuel will be much reduced. The nature of the ore at Hemerdon is rich enough, though, to mean that the project will still make money.
Tungsten West’s shares soared by around 50% in the days following the news of the re-jigged project.
Tungsten West was amongst the unluckiest in its timings, as it was just gearing up to go into a new phase of work when the oil price soared.
Other companies, that were only some way into their economic studies, at least had some room for manoeuvre.
And that’s why we’re now seeing economic studies coming out that take account of inflation and the high oil price, and are able to make things work anyway.
One example of that this week came from Anglesey Mining PLC (AIM:AYM), which released the results of a pre-feasibility study for the Grängesberg project in Sweden. The study set the net present value of Grängesberg at US$688mln, and reckoned it would generate an internal rate of return of 25.9%. Big numbers, and possibly too big for Anglesey to go it alone with. But numbers, nevertheless, that work – average annual cashflow was set at US$180mln. And under the “key risks” section, the oil price wasn’t mentioned. Instead, the Swedish permitting environment, which at its worst, can be fickle, was given its due respect.
Meanwhile, Blencowe Resources, which has a graphite project in Uganda, also put out numbers for a pre-feasibility study. This showed the project to have a net present value of US$468mlm, as against the company’s own market capitalisation of less than £7mln. The shares added around 15% on the news, and there may yet be more to come as the market wakes up to the value gap.
One key to the Blencowe story is that it’s able to access hydroelectric power. Another is that the quality of its graphite is very high. And these two factors combined tell their own story about new mining projects that are being developed – there are alternatives to oil that don’t have to be technologically complex, and the highest quality projects will always get moved along whatever the wider economic context.
In Bosnia, Adriatic Metals is now less than a year away from bringing its Vares project into production. So, it can be done.
Miners, as they always do, just have to adapt and change. And that process is already underway.