Speciality Metals paves way for December quarter tungsten production
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In keeping with timing flagged by management in May, Speciality Metals International Ltd (ASX:SEI) has completed the agreement for the purchase of Mount Carbine Quarries (MCQ) and commencement of the group’s joint venture with Cronimet Asia.
In formalising this transaction, SEI completed the tranche two placement of 160 million shares to sophisticated and professional investors.
With the MCQ acquisition now unconditional, the unincorporated joint venture between Speciality Metals and Cronimet Asia for the development of the Mount Carbine tungsten tailings retreatment and stockpiled projects has commenced.
This is a significant development for the group given that management anticipates achieving first production by the December quarter of 2019.
Underlining how this development is completely company transforming, executive chairman Russell Krause said, “This transaction has been many months in the making and upon completion will enable our company to properly unlock the long-recognised value of the Mt Carbine Tungsten Project.
"The Joint Venture with Cronimet and the technical expertise which comes with it, will completely reposition Speciality Metals and project it to the forefront of tungsten miners globally.
“Over the past few months our team has worked closely and co-operatively with the Cronimet team and we believe we are now in a position to shortly commence tungsten concentrate production at Mt Carbine at the lower-end of the production cost curve.
“I am very excited about the opportunity this arrangement brings and I am looking forward to a long and profitable relationship with Cronimet.”
Outlook for tungsten appears bright
If reputable industry analyst Roskill is on the mark, the timing of first production from a twenty-year operation couldn’t be better.
Roskill noted that tungsten markets were returning to growth following several years of oversupply and low prices.
In a 10 year outlook statement, Roskill said, “Tungsten market fundamentals have changed as demand from defence, industrial, and oil and gas applications has picked up, just as environmental policies in China have curbed supply and added cost pressures for producers.”
The issue of supply is potentially a long-term price driver as China is the largest global producer of tungsten, accounting for more than 80% of supply of tungsten concentrates in 2017.
A tightening in environmental restrictions has impacted the supply of many metals mined in China, with coal being severely impacted in recent years due to both environmental and mine safety issues.
Roskill reported that China’s Ministry of Ecology and Environment had flagged a second round of central environmental inspections across all provinces within the next three years, an initiative that could result in either mine closures or the instigation of compliance demands that would result in increased costs of production.
This could potentially render some mines uneconomical, prompting the need for the manufacturing giant to source tungsten from overseas producers.
Such a scenario where supply is constrained and demand increases should theoretically drive up prices.
Speciality Metals is perfectly positioned to take advantage of such conditions because of its projected low-cost production.