Almonty’s (CVE:AII) results made for interesting reading this week. Here is a company trading in the toughest of pricing environments, with tungsten at multi-year lows. And yet, not only is Almonty managing to make profits at at least one of its operations, but it’s also expanding, building its Spanish portfolio and moving into a new jurisdiction in Korea.
Similarly, George Roach at Premier African Minerals (PREM) is busy ramping up tungsten mining in Zimbabwe and talking of an analyst consensus that both pricing and demand look set to improve on a four year view.
Back in Spain at Ormonde’s (LON:ORM) Barruecopardo project, they’re also readying for an upturn in prices, and are looking have mining restarted in 18 months or so, backed by the deep pockets of a multi-billion dollar hedge fund.
The tungsten market is not large by global standards and so reading the market can be hard. Wolf Minerals (LON:WLFE), which began production at the Drakelands project in the UK not long ago, has had to refinance its debt and issue new shares to help it offset the current pricing weakness.
But Wolf too, is optimistic. Its latest quarterly results talk of “sound” demand and ongoing supply constraints that are likely to be exacerbated because so few new projects are coming on stream.
But back to Spain again: one project that is just coming on stream is the La Parrilla project of W Resources (LON:WRES).
The first blast at La Parilla took place in July, and W has just announced that initial production grades are likely to be higher and stripping ratios lower than had previously been anticipated.
Meanwhile, Thor Mining (LON:THR) has just announced that it’s raised £350,000 in order to undertake further work on its Molyhil tungsten project near Alice Springs, Australia, including an aircore drilling programme.
So what’s going on with all this activity and optimism?
In simple terms, the bet is that although in the third quarter of 2016 prices actually fell - to an average of US$193 per metric tonne unit (mtu) - in the long-term tungsten prices are going up.
Analysts at Somers & Partners spelt it out pretty simply in commentary that followed on from Almonty’s results on Thursday.
The analysts are punching in lower near-term tungsten prices to their spreadsheets of around US$200 per mtu. Longer term though, Somers is using a US$370 pricing assumption, with a slight drop off to US$350 after 2019.
That amounts to a 75% increase in the selling price over the next three years or so, a putting up of prices that most high street retailers can only dream about. And the tungsten market can tolerate such rises because it is so small – even if the tungsten price doubles, input costs for steel manufacturing are relatively unaffected because in percentage terms so much of the other metals are required.
So, although on the face of it, times are tough, there are grounds for hope. Not that the market isn’t being as picky as ever.
Thor Mining’s share price is broadly flat over the last six months. Likewise that of W Resources. Almonty’s is up by just under 10%, while Ormonde is by far the best performing, having nearly doubled to 2.25p.
Premier African’s meanwhile is being held back by a certain reticence on the part of investors towards its financing arrangements, about which we will speak more next week.
But if that looks like a mixed bag in terms of share price performances across the tungsten space, it’s worth taking a step back for a second and thinking on this: these are the companies that are moving and making things happen when the pricing environment is at its worst.
When the price improves, as Somers and others think it will, new players will come into the market with new projects to promote and confident pronouncements about economic viability.
But by that time the companies that are moving and expanding now – like Almonty and Ormonde - will be well established as producers and enjoying the full benefits of the greater margins that are on offer, while the newcomers will still be scratching around for exploration funding and development finance.