De l'or ... dans le tungstène ?? (7)

par alatan, jeudi 14 juillet 2005, 15:40 (il y a 7054 jours) @ alatan

CUSTOMER REACTION

In the past, uneasiness about Chinese supply has led some western companies to conclude long-term contracts with western mines at above-market prices. For years, the Panasqueira mine continued operations at a somewhat subdued level of activity because of such a contract with Phillips. Phillips let this contract lapse in early 2004, putting the mine's future in doubt. In Jan 2002, similar contracts with Sandvik (Sweden) and Osram Sylvania let North American Tungsten (NTC) reactivate its MacTung mine a 14 year halt. But a year and a half later, Sandvik and Osram Sylvania gave into "economic reality" and dropped their contracts, sending NTC into bankruptcy.

The current supply problems may well motivate large customers to once again conclude long-term contracts with satisfactory floor prices for western tungsten miners.

PANASQUEIRA MINE HISTORY

The Panasquiera mine license was granted over a century ago. At times, up to 3000 miners worked underground in the mine. The mine reportedly contains over 10,000 kilometers (6,000 miles) of raises, declines, drifts and production tunnels. A European project aims to develop part of the mine into a museum. The mine is well-known to mineralogists and collectors for its spectacular mineral specimens.

In 1993, Avocet Mining (now quoted on AIM) decided to focus on mining tungsten. The company acquired the Panasquiera mine, and took minority interests in Russian and Peruvian mines. Disappointed by the low price for tungsten, in 2003 Avocet sold a majority interest in the Panasquiera mine to an investment group which adopted the name Primary Metals. Avocet continued to hold a minority interest in the mine and over 5 million $US of debt. This year, Avocet sold its interest to Almonty LLC, a Delaware corporation. Avocet essentially forgave the remaining debt, although it still holds a million share warrants. Almonty injected money into Primary Metals and became the majority shareholder. Canadian filings identify the principals of Almonty as Daniel d'Amato and Lewis Black. Industry publications suggested that Lewis Black is the prime mover behind Almonty. Black reportedly is based in Paris, and he is linked with the small Thai tungsten miner LC Mining. The purchase was reported financed by the Maxim Group of New York.

In early 2004, after the loss of its contract with Phillips, Primary Metals decided to close the Panasquiera mine. The Portuguese government intervened to maintain the mine in activity, and financed the miners' salaries through a loan.

The Panasquiera team maintains an approximately 5 year horizon on future production. It may be necessary to open up a new level in the mine, and the access shaft has been partially completed.

PANASQUEIRA ECONOMICS

Until yesterday's press release, there was absolutely no public information about the effect of the soaring tungsten price on Primary Metals' revenue. Primary Metals was operating under a sales contract to a single unidentified customer through April 2006. By phone, Primary Metals director James Robertson explained some elements of this contract. Although the details are confidential, he assured me that Primary Metals does profit from the increasing market price (i.e., there is no ceiling). However, above a certain price, Primary Metals and its customer share the increase. At current prices (nearly 300 $US/MTU of APT), Primary Metals should realize a per-MTU revenue in the range of 160 to 190 $US.

Yesterday's press release spoke of 25 million $US revenue for an annual production of 120,000 MTUs at current prices. That corresponds to a sales price of 208 $US/MTU. An earlier press release evoked the possibility that Almonty could could secure a higher price in a renegotiated contract. It appears that Almonty succeeded on that point.

Historically, the production cost at Panasquiera was approximately 50 $US/MTU. Under the conjugated effects of unfavorable $-Euro evolution, somewhat lower grade ore, and aging equipment, the cost has risen to the 70-75 $/MTU range.

At an annual production of 120,000 MTUs and current prices, these figures would indicate an average monthly free cash flow of 1.3 million $US = 10,000 MTU/month x (208 - 75) $US.

Scattered references in Portuguese news reports lead me to believe that current monthly production is closer to 12,000 MTUs. New low-profile mining equipment should increase monthly production and lower production cost, by extracting less waste rock along with the ore-bearing veins. This low-profile equipment has been developed for South African chrome and platinum mines.