Life seems hard for junior miners. Banks appear risk averse when it comes to mining projects dependent on volatile commodity prices. Meanwhile, mining costs continue to rise just as many commodity prices have fallen.
Arguably the more diverse the end uses for the metal mined, the better the chances of securing funding.
Metals dependent on just one or two markets say like tin have greater exposure to the electronics and tin plate markets, to the exclusion of almost all else. Ironically, a mining project in the UK will rely upon the market not for the tin as once did, but for the Tungsten that resulted as a by- product.
Tin mining began at Hermerdon in 1867 and the mine remained in production right up to the end of the second world war in 1945. Tungsten came along for the ride as a by-product. Tungsten’s wear resistant properties, when added to steel, made the metal overly reliant on armor piercing shells and plating back in the last century. The market for these end-uses collapsed at the end of the Cold War. However, today we find tungsten in small amounts of everything from watches and windscreens, to ballpoint pens, light bulb filaments, drills, X-ray machines and according to the FT even fighter jets.
The mine in question contains the third largest known reserve of Wolframite and will produce 3,500 metric tons of concentrate a year by 2015 when it comes on stream. Not much you may say compared to a copper or bauxite mine but the total tungsten market comes to about 100,000 tons. 84% of supply comes from China which also consumes about 50% of global production. The FT draws comparisons with the rare earth oxides market which China controlled along with a corresponding price bubble that burst some two years ago with dramatic falls in prices.
In the meantime, the tungsten market too has come off but in a more gradual fashion. Prices rose from their traditional levels around $50-60 per ton in the first half of the 2000’s to a peak of $500 per metric ton in 2012, only to fall back in the meantime to about $370 today. Prices could still fall further but with a cost of production around $105 MTU of tungsten the Hemerdon mine in Cornwall UK has the potential to weather a significant downturn in the market and still remain profitable.
As with many junior plays, the key to funding involves the forward sell of a proportion of the production to persuade the banks of a profitable cash flow stream. Wolf Minerals, owners of Hermerdon have pre-sold some 80% of production and appear close to getting their funding in place. Good luck to them – any new sources for such a critical metal as tungsten based on stable conflict-free mature markets like Europe will receive an open-arm welcoming by industry.
As we have seen with rare earths – for metals markets to rely on one source of supply has the potential for highly disruptive volatility in prices and supply.