Almonty Industries (TSX: AII; US-OTC: ALMTF) has two mines in Europe producing tungsten concentrate – the Los Santos mine in western Spain and the Panasqueira mine in Portugal – but it’s the Sangdong tungsten project in South Korea that has become the junior’s main focus in recent years.
Sangdong – once one of the world’s largest tungsten mines in production and still one of the few high grade tungsten deposits outside of China — came into its portfolio in September 2015 when Almonty acquired its former owners, a Canadian company called Woulfe Mining, after a persistent courtship.
In December, after four years of forensic due diligence, the junior finally closed a US$75 million project financing for Sangdong from Germany state-owned KfW-IPEX Bank GmbH (the Credit Institute for Reconstruction), which will cover about 70% of the US$105 million construction costs. The financing is at Libor plus 2.3%.
The bank headquartered in Frankfurt specializes in export and project financing and is better known for financing large infrastructure projects spanning shipping and ports, airports, manufacturing plants, telecommunications and energy.
“KfW has a track record for being among the most conservative financiers,” Lewis Black, the company’s chairman, president and CEO, says in a telephone interview from Spain. “They have called me and admired our tenacity for getting through to the finish line because only 4% of applicants get there – such is the ferocity of their due diligence.”
Black describes the due diligence process as “very stressful” at times. “God bless the team at Hatch, but they pulled me apart for two years” he says. Ultimately it was worth it in the end, he adds. “We couldn’t have gotten a better deal; for a company of our size, it’s an extraordinarily good turnout for all of our shareholders.”
With a 19.5% stake in the company, Black, who also founded Almonty in 2009 with board member Daniel D’Amato, was adamant that the financing terms were palatable.
“We could have financed this three or four years ago for the usual double-digit deals from the likes of Orion or Sprott, the usual villains, but that’s often detrimental to shareholders, and I’m the biggest shareholder so I wanted to identify where I could find the most attractive financing,” he said. “What I didn’t know at the time was how difficult that was to procure.”
Black says the company raised another US$10 million from a 15-year offtake agreement with Austria’s Plansee Group and its subsidiary Global Tungsten Powders (GTP), with a floor price of US$235 per metric tonne of ammonium para tungstate (APT) (or about US$183 million metric tonnes of tungsten trioxide WO3); US$30 million in equity, and now must only raise the last US$10 million for construction. “It’s not a big ask,” Black says.
If all goes according to plan, he says, Almonty should finish construction of the chemical processing plant and start producing tungsten concentrate in 2022.
Sangdong – about 187 km southeast of Seoul on the eastern side of the country in Gangwon province, is initially expected to produce about 220,500 metric tonnes of tungsten trioxide (WO3) over a mine life of thirteen years.
An updated mineral resource estimate inclusive of reserves completed in July 2016 and based on a 0.15% W03 cut-off grade put the project’s indicated resources at 8.03 million tonnes grading 0.51% W03 and 0.05% molybdenum disulfide (M0S2) and inferred resources at 50.69 million tonnes grading 0.43% W03 and 0.05$ MOS2).
A 2016 technical report forecast a marketable tungsten concentrate grade of 65% tungsten trioxide and a mill rate of 640,000 tonnes of W03 annually.
“The Sangdong mine is considered the world’s best tungsten mine in terms of grade and size, and jurisdiction and in terms of access there’s nothing even close to it,” Black says, noting that it’s just a three and a half hour drive from the capital on paved highways. A nuclear power station at the port of Uljin is about 50 km to the east, and a power line passes within several kilometres of the project. An additional port, Donghae, is about 56 km to the northeast and a rail network is about 5 km to the south.
Black notes that while nailing down the financing took many years, the company used the time to drill down into earlier studies completed on the project by its previous owners and figure out if their approach was correct, all the while fine-tuning its own plans. For a start, he said, Almonty developed “a better understanding of the hard rock itself,” and revised its mining approach.
“We inherited a feasibility study on the project and we felt that perhaps the approach was one we would expect from a consulting group without much knowledge of tungsten,” he said. “But tungsten is very brittle, every time you handle it you lose some. Remember it’s fractured rock under there, you have to be very careful in your approach. We felt the block model we inherited wasn’t based on anything we could work with. … Our mine plan had to allow for diverging through different areas for safety and also cost reasons.”
Among its observations were that the mineralized zones were much larger than originally contemplated, so Almonty could have wider stopes and wide access ramps. “The bank very much concurred with our approach, and said even our approach was probably too conservative for them in terms of grade,” Black explained. “And we tried to approach this as operators rather than as marketers.”
The company also built a pilot plant at site and started mine development more than two years ago. “We were constantly revising our approach so we’re in a pretty good place when we start to see the plant go in during the spring.”
“Because of the time it took with KFW,” he said, “rather than just sitting around waiting for the phone to ring, we said: ‘Let’s continue doing our own work’… We know a lot more about how that project behaves, and that’s very important from a safety and cost perspective.”
One of the unusual things for a brownfield project is that Sangdong did not present Almonty with any environmental legacy issues because the South Korean government completed the entire clean-up of the tailings dam in the 1990s. According to Black, Seoul spent US$50 million and “encased all of the old tailings into a huge concrete box.”
“It’s an extraordinary structure to look at, but highly efficient — there are no concerns it will ever dissipate into the river because it’s entombed in a vast concrete box.”
Looking back at the mine’s roots
The Sangdong mine accounted for about 30% of the country’s GDP after the Korean War and a lot of companies in Korea were built from this mine, Black says.
Tungsten mineralization was discovered on the property in 1916 and the main Sangdong deposit was found in 1939-1940. The mine operated during World War II by Sorim Resources and from 1946 to 1949 “under the jurisdiction of the United States military office,” according to a 2016 technical report. Between 1949 and 1992, Sangdong was operated by a government owned mining company, last named Korea Tungsten Mining Co., and produced tungsten, scheelite, bismuth and molybdenum concentrates.
By the time Sangdong closed in 1992, the mine had 20 levels of underground development with a cumulative length of 20 km of workings, as well as six inclines totaling 3.8 km, a ventilation incline, and a 450 metre vertical shaft. Historic production figures are spotty over the life of the mine, but according to the technical report, Sangdong produced between 994 tonnes of tungsten concentrate a year in 1955 and 3,268 tonnes in 1961.
In 2006, the asset was picked up by a private company called Oriental Minerals, which in 2010 changed its name to Woulfe Mining, and in 2011 earned a 100% stake in the project. Woulfe completed drilling programs from 2006 until 2008 and completed resource estimates in 2012 and 2014.
“We’ve coveted this mine for many years, but obviously there was always an entrenched management team in there and sometimes patience is a virtue,” he says.
Almonty’s strategy is to pick up distressed assets and turn them around. When it acquired Wolfe Mining and the Sangdong project five years ago it paid US$20 million in cash and inherited US$15 million in debt, US$11 million of which has been paid off since then. The remaining US$4 million, Black says, “is in friendly hands.”
In Europe, it acquired the Los Santos tungsten mine in Spain for US$17 million in September 2011 and its Panasqueira tungsten mine in Portugal in January 2016 for €1.5 million (US$1.8 million).
The Los Santos mine, about 50 km from Salamanca in western Spain, is now a tailings processing site, with a remaining mine life of about ten years. It was placed under care and maintenance due to Covid-19 but will re-open later this year and Black forecasts production of about 1,200 tonnes of WO3 in 2020 rising to 2,000 tonnes in 2021.
Panasqueira, 260 km northeast of Lisbon, has been in production since 1886, and produces tungsten concentrate. It has an estimated mine life of 20 years. The mine produced 1,100 tonnes of tungsten concentrate and will produce about the same this year, Black says.
Almonty also owns the Valtreixal tin-tungsten open-pit project, about 250 km from its Los Santos operation in Spain, which it acquired in 2014 for €2.4 million (US$2.9 million).
Black is optimistic about the market for tungsten – noting that the price for APT has risen 30% in the last three weeks alone to about US$250 per tonne. “We appear to be entering, not just for tungsten but across the board, a new super cycle with the lack of investment in new projects in many commodities and that has had a profound impact,” he said. “We’re seeing a much stronger demand for tungsten in Austral-Asia – all the way from China down through South Korea, Japan, Southeast Asia and into Australia.”
Demand, he said, “has been much higher than anyone appreciated and the outlook is that it will continue. The bulk of manufacturing on the planet is in this area so that’s a voracious consumer of commodities and will drive prices for another three to four years.” Ultimately, Black says, tungsten prices could return to their pre-2008 price levels of around US$475 per tonne. “This is certainly a possibility.”
The trick for Almonty – and all other tungsten producers – is to stay cost competitive with China – which currently produces about 82% of the world’s tungsten. But Black says Sangdong has a competitive advantage given the rising focus on Environmental, Social and Governance (ESG) and the growing importance to end-users where the metal or concentrate is coming from. “We also have to be transparent, operate in safe jurisdictions with real legal systems,” he says. “The supply chain has to be as pure as you can get – this is the 21st Century. … When Apple buys components they want to know the sources and one of the main components of semiconductors is tungsten.”
Black admits that it’s difficult to forecast where tungsten prices might be headed (“it’s like throwing a dart”), especially when the majority of the world’s current production is coming from China, it is relatively easy to chart demand. Based on the studies he’s seen, he says, tungsten demand has been growing by about 3% a year for the last two decades. “As old applications for tungsten like light bulbs fall away there are newer applications,” he says, including cathodes used in electric vehicles (tungsten-niobium cathodes), fusion reactors, and in wind and solar power plants. “These things are moving so fast I don’t even claim to keep up.”
Shareholders in Almonty include Austria’s Plansee Group (15%); Deutsche Rohstoff (12.7%); Korea Zinc (1.9%); and board members 2% — leaving a free float of about 49%.
Over the last year, the Toronto-headquartered company has traded in a range of 28¢ and 87¢ per share and at presstime was changing hands at 77¢. The company has about186 million common shares outstanding for a market cap of $143 million.
Black says the company plans to list on the Australian stock exchange in March or April to take advantage of the country’s deep pool of investors and exchange-traded funds.