West Eager To Break Chinese Monopoly

- October 21st, 2009

Low demand, low prices, and the break up of the former USSR has led to a collapse in tungsten production. With China soldering on as the predominant tungsten producer in the world, the West is seeking out direct ownership of non-Chinese mines. Where is the fresh supply?

By Cyrus S Darabshaw Exclusive To Tungsten Investing News

Shining metal

Shining metal

Though the demand for tungsten world-wide continues to be steady, it is being hampered by a relative shortage of the metal. What is not helping matters is the supposed rumour that some of the gold bars that have come out of bonded warehouses for delivery on LBMA contracts are filled with tungsten.

Apparently, a new Far East buyer for a large quantity of tungsten appeared last week, who is suspected of being a front for the real buyers. It is conceivable that some of the rising demand for tungsten is to manufacture counterfeit gold bars.

Tungsten is the only metal whose density matches that of gold, so that one could not detect it by weight or physical dimensions. The only way such counterfeit bars could be detected without destroying them is to check for their electrical conductivity.

Curiously, tungsten, which currently trades for about $147 per metric ton, is a metal that has had few new applications developed for some time.

Typically, its demand has fluctuated right in line with overall economic growth. However, since 2002, demand has increased to the order of 10 per cent a year. Production, on the other hand, has been falling by approximately 4 per cent, especially since 2004.

The dense, silvery-white, lustrous metal which has the highest melting point of all metals, is used for making heavy metal alloys because of its hardness.

A Haywood’s Tungsten Industry Report had predicted an additional growth in consumption of tungsten by three million metric tonnes, a 32 per cent increase in current global production. By 2013, it had predicted a global demand of 125,000 tonnes per year.

China market

China leads the way in this metal’s demand, being the largest importer and also as the world’s largest producer controlling about 80 per cent of the global tungsten production. China has accounted for 1/3 in the world’s total consumption.

It may be recalled that world tungsten production dropped from a peak of over 55,000 tonnes of metal contained in 1990 to just over 30,000 tonnes in 1997, rising again to an estimated 76,000 tonnes in 2005.

Low demand, low prices, and the break up of the former USSR led to a collapse in tungsten production. As a result, China is now the predominant tungsten producer in the world.

As is consistent with the rare earths industry, China strives to ensure that the long-term needs of its industrial base are satisfied. The western world produces only a marginal supply, and is still reliant on China to supplement their need for tungsten.

Break Chinese monopoly

The West though is getting increasingly concerned about China’s grip on the global tungsten market. Feeling perhaps threatened by the Chinese domination over the tungsten market, many in the west are said to be seeking out direct ownership of non-Chinese mines.

The search has led consumers to the Australian-based company Heemskirk, one of a handful of non-Chinese miners of tungsten from its Los Santos project in Spain.

Recently, Heemskirk revealed that it had received a “number of corporate approaches” on Los Santos, the fifth-biggest non-Chinese tungsten mine in the world and the only significant such development in the last 10 years.

Analysts, however, are speculating that many European tungsten consumers – those making machine and drilling tools and industrial high temperature metals – could be looking to acquire a direct stake in the mine to ensure supply.

Heemskirk also owns 40 per cent of the Pajingo gold mine in north Queensland, Australia. The group’s equity share of Pajingo output is about 25,000 ounces annually. It also owns a business in Canada that supplies drilling muds to the oil industry.

The value of the group’s assets is not fully reflected in its share price. At yesterday’s close of 52c a share – up 2c – the company’s market capitalisation was $57 million.

A similar-sized tungsten mine, the Panasqueira mine in Portugal, was acquired by the Japanese trading house Sojitz last year for a price believed to have been US$ 50 million.

Primary Metals Inc (TSX VENTURE:PMI) has also announced recent progress at its wholly owned Panasqueira tungsten mine, where a refurbishment program is underway.

Mine output has increased significantly to 3,000 metric tons per day from previous levels of 2,400 tpd, an increase of 25 per cent.

Last year, the Swedish mining and construction tool maker Sandvik bought the Mittersill tungsten mine in Austria, also to secure non-Chinese supplies.

Because of a lack of new mine developments, tungsten production has been falling by 5 per cent annually since 2004. But demand has been growing at 3-6 per cent, with China accounting for virtually all the growth.

Company News

The ASX-listed tungsten explorer Icon Resources late last week reported that an independent scoping study into the redevelopment of its Mount Carbine tungsten deposit, in Queensland.

The firm has established that a “relatively modest” capital expenditure was required to redevelop the project.

“The scoping study confirms the board’s long-term commitment and vision for Mount Carbine, which has historically been one of Australia’s largest tungsten producers,” said managing director John Bishop.

Icon stated that given the existing mining lease, access and no significant environmental constraints, the project could be in production within three years.

Hazelwood Resources (HAZ) has borrowed US$ 10.35 million from institutions and clients of Perth broker Hartleys.  A $2m share purchase plan is to follow. The money is intended for the Big Hill tungsten project in the East Pilbara.

Hartleys earlier this month put out a “speculative buy” recommendation on HAZ. As well as mining the metal, the junior is investigating the potential to add downstream processing to create ammonium paratungstate which Hartleys analyst Andrew Muir said should help deliver higher margins.

Dentonia Resources Ltd recently announced the results of a rock panel sample taken from the tungsten showing on the 29,603-hectare Knight Inlet area claims.

Sultan Minerals announced results from 6 diamond drill holes completed on its Jersey-Emerald Property, Salmo, British Columbia.

The drilling, said a company press release, inspected some of the higest grade tungsten mineralisation intercepted to date, including 2.5 feet of 1.17 per cent WO3.

The 6 holes were completed on the recently acquired Victory Tungsten Deposit located approximately 3.5 kms north of the historic tungsten mines on its Jersey property. The company stated that the results confirmed suspicions of the presence of a high grade tungsten resource on the Victory site.

The Jersey-Emerald Tungsten mine was the largest tungsten producer in British Columbia and second largest in Canada. The mine went into production in 1943 and produced from five deposits until it closed in 1973 due to poor tungsten prices.

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