Tungsten Mining: High Grade Drilling Results Advance Project Toward Feasibility

• 14m @ 0.82% WO₃ from 53m
• 15m @ 0.76% WO₃ from 78m
• 15m @ 0.24% WO₃ from 27m
• 9m @ 0.47% WO₃ from 51m

The share price remained largely unchanged on the day, with expectation of positive results presumably already priced in after the share price more than doubled from the commencement of drilling in August. This current drilling program was designed to infill and possibly expand some of the higher grade ore zones and lift as much of the existing resource as possible into the indicated category so that formal feasibility studies could be commenced in the December quarter.

The company commenced work on the project in late 2012, announcing a JORC resource for Kilba in May 2013, with most of the tonnage still in the lower level inferred category. The deposit was not large, but was reasonably high grade.

Following the JORC announcement, the company quickly moved into a scoping study, based upon a planned annual production rate of 154,000 mtu (1mtu = 10kg) for seven years. Given the low level of confidence of the resource, the study was only preliminary but demonstrated positive first pass economics with an upfront capital cost of US$56 million and average LOM cash cost of US$212/mtu – sufficient to justify additional work and move the project into the more detailed feasibility process.

Funding problems arose however, to the point where the company had cash reserves of only A$200k at the end of the March quarter, with all work largely coming to a halt. The company began the process of an underwritten discounted rights issue to raise A$4.25 million from the issue of 106 million shares. The issue was heavily undersubscribed, however most of the shortfall was taken up by the underwriter, providing much needed cash, as well as providing the opportunity for a new strategic partner to pick up a large stake.

In early June, it was announced that GWR Group (ASX:GWR), had taken advantage of the shortfall to acquire a 16.5% stake in TGN via the purchase of 35 million shares for A$1.4 million. GWN, formerly known as Golden West Resources, originally an iron ore developer until its Western Australian iron ore projects were rendered uneconomic by recent price slumps, had instead moved more toward an investing model to generate value from its hefty cash balance of A$18.3m as at the end of the June quarter. The two companies then quickly moved to consolidate their strategic alliance – the companies now share the same office and the same CEO, and GWR has assumed responsibility for all of the technical and management functions of TGN.

TGN remains an independent company, but for all extents and purposes is now being operated as subsidiary of GWR.

The Kilba deposit is located in the remote Ashburton region of Western Australia and was first identified by Union Carbide in the 1980’s when a small open resource was defined. However its remoteness and small size saw it resigned to obscurity. The market for tungsten began to move higher in late 2010, heightening interest in the metal, and ultimately leading to the project being resurrected and TGN coming to the market via IPO in October 2012.

Tungsten, in the form of Ammonium Para Tungstate (APT) is currently trading at roughly $350/mtu, off 10 percent from the highs of June, but still up 40 percent from 2010. The tungsten market is currently in deficit which is seen to widen, with prices forecast to increase beyond $450/mtu in 2015 as few new projects are on the drawing board. Kilba would produce a WO3 concentrate which might be expected to fetch approximately 80 percent of the APT price, and so even on current prices, there would seem to be a healthy margin that may be increased with further refinement to the processing or an increase to the mining head grade.

Drilling continues and given the infill nature of the program, further high grade results are expected in coming weeks leading to an updated JORC resource in the near term, and then into full-fledged feasibility toward the end of the year.

The close tie with GWR, might been seen as complicating issues, however the link resolves the funding risk that has plagued the company since 2013, and provides a path toward consolidation in the medium term.

Securities Disclosure: Brad George, holds no investment interest in any of the companies mentioned.