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Tungsten merger to get ‘ball rolling’ on industry consolidation

9th February 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – A proposed merger between Almonty Industries and Woulfe Mining announced late last month was not only expected to create a new tungsten-producing major but was also seen as the catalyst of the industry's long-awaited consolidation.

Principal and mining strategist at New York-based economic think-tank Hallgarten & Company Christopher Ecclestone on Monday said in a note to clients that, while the proposed deal came as a surprise, the mining space had been in need of a “tungsten champion” for some time.

He noted that a series of one-mine/one-country tungsten plays had "come to grief" as a result of their monofocus and failure to look beyond the mine-life of their main assets.

In 2013, Almonty made a move on Spain-focused Ormonde Mining, but was blocked. However, the company regrouped and added an asset in Australia. With the latest proposed deal, it was looking to add short-term production in South Korea, by acquiring Woulfe’s stalled Shandong tungsten project.

Almonty’s main assets were the Los Santos tungsten mine, producing 1 100 t/y of tungsten trioxide, and the Wolfram Camp tungsten and molybdenum mine, in Queensland Australia, which produced 700 t of tungsten trioxide in 2013. It was also working towards commissioning the Valtreixal tin/tungsten mine, in north-western Spain, with expected production in 2017.

The Sangdong project was, before its closure in 1992, the world's leading producer of tungsten for 40 years. Low metal prices, not the exhaustion of resources, led to the mine's premature closure, Ecclestone pointed out.

The historical production rate averaged 600 000 t/y, mainly from the 6-m-thick Main Vein.

A scoping study by Woulfe had indicated that the property had more than 40 years' of mine life remaining, while drilling conducted by Kores from 1980 to 1987 discovered a deep molybdenum deposit below the remaining tungsten skarn resources.

Woulfe had also recently completed a derisking review of its final 2012 feasibility study, compiled by Tetratech. The projected capital expenditures had been halved to $74.4-million by right-sizing the project.

Ecclestone noted that China had restricted tungsten exports in recent years, either owing to a desire to stockpile material for its own future use, or a sign that heavy over-exploitation in recent decades had left the country in a vulnerable supply situation.

However, the tungsten price had shown itself to be highly volatile in recent years. If it fell below $250/t, investment dried up and some mines became uneconomic.

Under the terms of the letter of intent announced on January 27, Almonty would acquire all of the outstanding common shares of Woulfe at a price of C$0.08 a share. The price represented a 22.7% premium on Woulfe’s 30-day volume weighted average price for the period ending January 26.

Upon completion of the merger, Woulfe's shareholders would own about 41% to 48% of the merged entity.

Completing the merger was subject to a due diligence process by both companies, which was expected to be completed within the next month.

The Sangdong project contained a combined compliant measured and indicated resource of 3.81-million tonnes, grading 0.56% tungsten trioxide for 2.12-million tonnes of contained tungsten trioxide. The inferred category contained 11.28-million tonnes, grading 0.64% tungsten trioxide, for 7.18-million tonnes of tungsten trioxide.

Ecclestone noted that despite the Sangdong project not being a “plug-and-play” project, significant advancements in permitting, development and equipment purchases had already been made by Woulfe, which was the reason why Almonty was paying a high price in dilution to gain control of the project.

Israeli group IMC also held an option to buy a 25%-ownership interest in Sangdong for $35-million.

“The long awaited consolidation is happening but, alas, it’s only one company initiating the process. If the current deal plays out to plan then we would expect maybe one or two more mines to be rolled in and we should not discount the possibility that Almonty will circle back to get its teeth into Ormonde at some point,” Ecclestone said.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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