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These two tungsten companies had it all, but suddenly their future isn’t so certain.
Woulfe’s Sangdong mine has an uncertain future
All eyes were on Woulfe Mining (TSXV:WOF) in 2012 after a late February announcement that the tungsten junior had entered into a strategic agreement with IMC International Metalworking Companies (IMC) — a Warren Buffet company. At the time, the future couldn’t have been brighter.
Fast forward 15 months and a resignation of the company’s executive management and the fate of the Sangdong tungsten mine is on the line.
On May 17, Woulfe Mining provided investors with an after hours corporate update that stated that following an extensive internal review, the company has identified “issues relating to liquidity” connected to the company and its subsidiaries’ abilities to meet various payables.
While the company works to conserve cash, reduce costs and enhance corporate efficiency, there are no guarantees that any short-term funding will be available. Meanwhile, the company, alongside its largest shareholder, Dundee Corporation, is focusing on long-term funding and is still in talks with IMC to complete the strategic transactions outlined over a year ago.
According to Metal-Pages, interim CEO Hubert Marleau believes a funding deal with IMC is unlikely to happen without IMC receiving proof that resources from a previous feasibility study can be delivered.
“We have every reason to believe right now that the feasibility is going to be OK, but we have to prove it, which means maybe three months of drilling,” Marleau told Metal-Pages.
The board and Marleau “recognize the seriousness of these issues, including the potential ability to advance its key Sangdong Tungsten Project.” Woulfe is expecting production from the South Korean project to be delayed until the final quarter of 2014. For the sake of reference, production was originally scheduled for the first quarter of 2013.
Malaga loses power
Malaga was one of the few tungsten producers outside of China, operating the Pasto Bueno mine in northern Peru. Outside of China’s production, Malaga was producing 10 percent of the world’s tungsten. That is until October 2012.
On October 5, Malaga was looking at expanding its Pasto Bueno operations. The company was optimistic that it could increase its mine capacity from 350 tonnes per day to better match the plant capacity of 500 tonnes per day. Malaga had hopes of increasing the plant size and doubling output the next two years. Monet told Mineweb that “there is huge exploration potential, not only to extend the mine’s current underground operations on its wolframite bearing veins, but also to eventually exploit a higher grade large scheelite deposit in the lease area close by, but this would require a completely new process plant.“
By the end of the month, the company’s optimistic outlook had faltered.
A power disruption caused by a severed hydroelectric transmission at Pasto Bueno on October 22 resulted in the Malaga suspending operations at the mine for four weeks. Furthermore, the company announced that it would not resume production until had secured financing that it was hoping for to move forward with expansion.
In November, Tungsten Investing News (TIN) spoke with Malaga’s CEO, Pierre Monet, who explained that the company attempted to run generators in hopes of getting the power back online; however, costs tripled and the company was forced to put the mine on care and maintenance to reduce costs and preserve cash.
While tungsten costs played a factor, Monet told TIN that the company’s poor performance was mainly the cause of reduced mine output.
In April, in an attempt to raise funds, Malaga agreed to sell all of its shares in Hidroelélecticia Pelagatos — its hydroelectric power plant — for cash proceeds of $650,000, the company received the initial $325,000 deposit with the balance to be received within weeks when the agreement closed.
The latest development for Malaga was an announcement of its intention to sell its Peruvian assets as financial concerns deepen. With Pasto Bueno still on care and maintenance, the company is exploring all avenues to reduce costs, even selling a portion or all of its assets, Mining Weekly reported. Following the company’s Q1 financials, the company is not in a position to meet its payables, with a working capital deficit of $8.3 million.
Tungsten is not out of the game
Though discouraging to hear that two companies with promise are faltering, investors should note that tungsten is a strategic metal whose demand isn’t just going to go away. With China controlling over 80 percent of all tungsten production, securing supply outside of the Asian nation is still an important goal for western industries who require the metal that has no substitute.
Prices for tungsten are looking a little better in recent weeks with Metal-Pages reporting that while most markets have been floating in limbo, tungsten prices have remained firm. APT prices are current sitting at $350-370 per mtu.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.