Speciality Metals producing tungsten in 2019

Speciality Metals International Ltd (ASX:SEI) has signed transaction documents for the acquisition of 100% of Mt Carbine Quarries Pty Ltd, an entity that owns and operates the Mt Carbine quarry and mining leases ML4867 and ML4919.

Settlement is scheduled for 28 June, 2019, paving the way for this much anticipated North Queensland project to rapidly progress to production of high grade tungsten.

Investor confidence regarding Specialty Metals future has been bouyant. Even without the formal project green light, the company has been trading only 10% shy of its 12 month high.

Consequently, now that the project has go-ahead the company’s shares could push well beyond their 12 month ceiling.

The group has also ratified the unincorporated joint venture between it and Cronimet Asia Pte Ltd for the joint development of the Mt Carbine Tungsten Tailings Retreatment and Stockpile Projects.

Production from the tailings retreatment is expected to commence during the December quarter of 2019.

Cronimet is a subsidiary of the privately owned Cronimet Holding GmbH which was founded in 1980 as a raw materials service provider and trader in Karlsruhe, Germany.

The Cronimet Group has grown organically since then to become a diversified commodity group with over 5,200 employees and activities in over 50 countries.

While some were expecting the project to kick into gear a little earlier, it is obvious that both Specialty Metals and Cronimet have taken a measured and thorough approach to due diligence, providing confidence going forward.

On this note, Speciality Metals executive chairman, Russell Krause, commented:

“This transaction has been many months in the making and upon completion will enable our company to properly unlock the long-recognised value of the Mt Carbine Tungsten Project.

“The joint venture with Cronimet and the technical expertise which comes with it, will completely reposition Speciality Metals and project it to the forefront of tungsten miners globally.

“Over the past few months our team has worked closely and co-operatively with the Cronimet team and believe we are now in a position to shortly commence tungsten concentrate production at Mt Carbine at the lower-end of the production cost curve.

“I am very excited about the opportunity this arrangement brings and I am looking forward to a long and profitable relationship with Cronimet,” Mr Krause concluded.

Offtake agreement of US$3.5 million

Under the terms of the agreement Cronimet will provide an offtake advance of US$3.5 million (Offtake Advance) to each of Mt Carbine Retreatment (US$1.75 million) and Cronimet Australia (US$1.75 million).

Mt Carbine Retreatment and Cronimet Australia will each pay US$1.5 million (US$3.0 million in total) to Speciality Metals in consideration for the transfer of retreatment assets from Speciality Metals to the joint venture partners and as a pre-payment of rent under the Sub-Lease.

With the endgame being the development of the open pit and underground operations for production of tungsten concentrate from other parts of the Mining Leases, once the open pit operations commence, Cronimet is given a once off first right of refusal to enter into an exclusive offtake arrangement for all tungsten concentrate produced from the Mt Carbine open pit operations over its total mine life.

Right metal, right time

Shares in tungsten stocks have gained renewed support in the last 12 months with the share price of another emerging player, King Island Scheelite Ltd (ASX:KIS), having nearly doubled in price since May 2018.

While the tungsten price eased in the latter half of 2018, it appears to have found support around current levels and with industry analysts indicating that the supply/demand equation has now turned in favour of producers, the timing couldn’t be better for Specialty Metals.

Roskill, a notable industry source in terms of analysing specialty metals noted last year that global tungsten markets were returning to growth following several years of oversupply and low prices.

In a 10 year outlook statement, Roskill said, “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.”

The issue of supply is potentially a long-term price driver as China is the largest producer of tungsten globally, accounting for more than 80% of supply of tungsten concentrates in 2017.

A tightening in environmental restrictions has impacted the supply of many metals mined in China, with coal being severely impacted in recent years due to both environmental and mine safety issues.

Roskill reported that China’s Ministry of Ecology and Environment had flagged a second round of central environmental inspections across all provinces within the next three years, an initiative that could result in either mine closures or the instigation of compliance demands that would result in increased costs of production.

This could potentially render some mines uneconomical, prompting the need for the manufacturing giant to source tungsten from overseas producers.

Such a scenario where supply is constrained and demand increases should theoretically drive up prices.

Specialty Metals is perfectly positioned to take advantage of such conditions because of its projected low-cost production.