North American Tungsten: The Western world's largest alternative to Chinese tungsten supply
Resource Intelligence: After months of inactivity you restarted production at your CanTung mine last year because prices have recovered. What factors have contributed to the recovery?Stephen Leahy: The real issue is prices. During the fall and winter of 2009, tungsten prices were below $200 per MTU and recently they have recovered dramatically to a current high of $360 per MTU. The recovery in prices is due to several reasons: consumers' inventory is running low and while there was a dramatic increase in recycling over the last few years in reaction to China's decision to limit exports, the recycling has essentially reached its limit. When that happened, there was virtually no new supply. Tungsten is a strategic metal that has no substitute in a lot of its uses so because of low supply and increasing demand, prices are up dramatically.
RI: Is the CanTung mine now operating at
full capacity?
SL: Just about. We used that 12-month period of inactivity to introduce new technology, some new mining/milling methods and a significant upgrade to our equipment.
RI: How much do you produce per annum?
SL: We haven't announced our forward projections but the last full year we were in production we produced approximately 320,000 MTUs.
RI: When do you think you will reach full production capacity?
SL: On an annualized rate, hopefully by the second quarter of this year.
RI: North American Tungsten is the Western world's largest producer of tungsten concentrate. How much of the global demand do you supply?
SL: We supply 4 to 5%.
RI: Does the market readily absorb the supply?
SL: Absolutely. Today there is no question we could sell our production probably two times over. We are effectively sold out for two years under market-based off-take agreements.
RI: What are your markets?
SL: They are metal bulletin posted prices on reported trades so there is no post system
like copper.
RI: At what price does the company make a profit and therefore continue to produce?
SL: We haven't announced that but certainly I can tell you that we feel good over $225 per MTU.
RI: Other strategic metals have seen big jumps in prices such as rare earths, molybdenum and uranium. Tungsten is now $345 per MTU. How much higher are analysts telling you it could go?
SL: I'm hearing $400 and one of the reasons it is sustainable is that there are not a lot of substitutes for tungsten and it usually accounts for a small percentage of the overall price of a
product. The other thing is supply.
RI: What opportunities do you see in the tungsten market and how is your company positioned to benefit from tungsten's position as a strategic metal?
SL: Western companies who used to rely a lot on China for tungsten material will now start searching the West aggressively for alternative sources of supply because China, which controls 85% of the market, is now starting to make the finished products of tungsten. We are currently producing a significant portion of the world supply at CanTung. We also have the largest high-grade tungsten deposit in the world, called MacTung, located in the Yukon. It is past the feasibility stage and is now in the permitting process.
RI: Do investors realize how important tungsten is to industry and the military?
SL: Absolutely not. I think tungsten is not on the radar screen. But I think it is being helped by people's awareness of rare earths and the dominance of China.
RI: Which everyday products have tungsten?
SL: Fifty-five percent of the consumption of tungsten is for industrial cutting tools as a carbide. Lighting accounts for about 2% of the market and the rest is spread out among electronic consumer products such as cell phones. It is also used in railways, turbines, jet engines and aerospace applications.
RI: China holds a great deal of power when it comes to the supply of strategic metals. What's your take on this?
SL: The worst part about it is that countries in the industrialized world have come to rely on China as a raw materials supplier and we over here in the West have virtually done no exploration for tungsten and rare earths until very recently. By the time you start doing exploration, find something, and then actually get it into production it could be 15 years. We've been lulled into a false sense of security that China will always continue to supply our needs in these areas but that's not the case anymore.
MacTung site in the Yukon
RI: Could you give us the latest update on your MacTung project?
SL: MacTung has a bankable feasibility study and is now in the permitting stage. We expect permitting to take another year, if not less, and then construction, which will take two years.
RI: Could you give us some numbers for investors to be able to evaluate this project?
SL: The MacTung project is forecast to run at 2,000 MTUs per day from an underground operation. The capital expenditure to build the mine, plus contingency, is approximately $400 million. Based on tungsten prices of $300 per MTU, we have a 23% rate of return and a net present value of $276 million.
RI: How does MacTung compare with CanTung in terms of size?
SL: It is two times the size in terms of production. It also has a 30-year mine life. There is nothing in the world like it, including in China.
RI: If I were an investor give me three reasons I should keep North American Tungsten on my radar.
SL: Number one reason is tungsten itself. It's a strategic metal that no other metal comes even close to in terms of hardness or melting point. It has many uses and as we move into a more high-tech world it will have even more uses. The second reason is the fact that we operate the Western world's largest operating mine called CanTung, which accounts for 4 to 5% of the world production; that is a big number for a little company. Third is the MacTung deposit, which is the largest known high-grade tungsten skarn deposit in the world.
RI: Over the past several years there have been cutbacks/shutdowns in your production. What changed and why is the outlook so bright now?
SL: Certainly the supply and demand curve has significantly changed meaning that in terms of higher prices they are here to stay. We have always struggled with pricing because we are a higher-cost producer than a Chinese mine. China has now changed its attitude towards its own mines so that their costs are rising way faster than ours. That will keep prices high and we will be the beneficiary of those prices. When prices go below our cost of production that's when we have a tough time.
RI: If China keeps tungsten for its own production, is that good for you?
SL: Yes. The supply from China will continue to shrink as it has for the past seven or eight years. They make their own products now and they use their own products way more and if they have excess then they might sell it to us. I think the likelihood of that is remote. The other thing is that they found themselves in a very dominant position of a strategic commodity, allowing them to significantly impact the price.
RI: Where do you see North American Tungsten in three to five years?
SL: I see North American Tungsten as the largest tungsten company in the West that is a great alternative to Chinese supply and I see a lot of people very anxious to become involved in off-take and financially in North American Tungsten.
RI: Will you be focusing your energies and resources on these two mines for now?
SL: For now that is enough for us. Our goals are to significantly improve recovery rates at CanTung, which is why we are changing the mill and some of the ways we run our circuitry, and to advance the MacTung project.
RI: Is there anything else you think investors should know?
SL: People might be aware that global demand for tungsten has been increasing by 5 to 6%, but what they really should know is that domestic demand in China alone has been rising at a very rapid rate of more than 15% per annum. The second thing is that there is a huge push to replace lead with tungsten composites in numerous consumer applications because tungsten is non-toxic and very heavy. Tungsten is the only product that configures to this particular type of composite so demand could skyrocket.
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