De l'or ... dans le tungstène ?? (5)

par alatan, jeudi 14 juillet 2005, 15:37 (il y a 7054 jours) @ alatan

This is a China story with a vengeance. Most energy and mineral resource investments are "China plays," with a few possible exceptions such as uranium and North American natural gas. But the future tungsten price evolution will depend very heavily on obscure events in China. Over the last two decades, almost all non-Chinese tungsten producers shut down. They could not cope with the combined effect of cheap (and illegal) Chinese exports and dumping of accumulated US and FSU strategic reserves. China's share of worldwide tungsten ore production rose to approximately 80%. But it appears that the Chinese central government has finally, after several false starts, succeeded in shutting down most illegal mines. With internal demand soaring and production problems at some of its official mines, China is now having problems meeting its own internal demand for tungsten ore. Non-Chinese customers may soon face slowdowns and layoffs due to the supply shortage.

What goes up must come down. Additional production will inevitably come online, and perhaps result in an oversupply. If cheap Chinese supplies do return to the market, the future of the Panasqueira mine will again be in doubt. I see three "parachutes" which would assure Primary Metals of a soft landing. I believe these parachutes would assure a long-term base value for Primary Metals in line with or exceeding its current capitalization:
o) Shaken by the supply interruption, major western clients may return to the sort of long-term above-market contracts which kept Panasqueira alive until last year.
o) The central Chinese government may finally achieve its official goals of stamping out wildcat production, limiting ore exports and supporting tungsten prices.
o) Support from the new majority owner and the current free cash flow is permitting Primary Metals to completely revamp the aging equipment and lower future production costs at Panasqueira.

I believe the current value of Primary Metals is secure, unless none of these parachutes deploy. The earnings bonanza accumulated during the tungsten price peak will probably be invested in additional mining projects. The future value of Primary Metals depends on the duration of the tungsten price spike and management's choice of new mining projects.

Here are some positive aspects:
o) Ownership. PMI has a new majority owner Almonty LLC, who intends to increase production as quickly as possible in order to take advantage of the price spike.
o) Debts. All major debts have been forgiven or settled, except a 1.2 million Euro loan from the Portuguese government, for which management expects to negotiate a long-term repayment plan.
o) Political support. The mine, which is the principal economic activity in the region, receives strong support from the Portuguese government.
o) Labor peace. In early June, Portuguese papers reported that a standing labor dispute was settled. Miners asked for a 35 Euros/month increase, and management had offered 14 Euros/month. The dispute was settled when management upped their offer to 40 Euros/month (yes, higher than the union demand!).
o) Investments. The same news articles reported a commitment by Almonty to the union for a 3.4 million Euro investment. This will be used to develop the mine, with new equipment and perhaps new galleries. Yesterday's press release specified that all underground equipment is being replaced with the latest low-profile equipment.
o) Sales contract. (Since yesterday) a new multi-year contract with Osram Sylvania with "significant scope for increased production."
o) Current production. The Portuguese press has recently reported good production levels, for example, 120 tonnes of tungsten concentrate in May.
o) Future production. Yesterday's press release evoked the possibility of reprocessing existing tailings with new equipment. This could recover the equivalent of a years production. The new low-profile underground equipment will also "significantly" increase production, by extracting less waste rock.