Almonty: Tungsten Monopolists in the Making?
One of the most annoying things when playing Monopoly is for one of the players, by stealth or otherwise, to have accumulated one of the sides of the board and then populated it with houses and hotels. This creates a devious trap into which most other passing players fall and end up losing their entire wherewithal in rent. For those who know how to play, its not that easy to collect a whole side. Usually it happens not by just landing and exercising one’s right to buy but also by trading properties with other players and particularly by preying upon the nearly bankrupt and accepting properties in lieu of rent or fines.
The best part of the board to accumulate consists of the final stretch where the most high value properties linger and where the highest return on investment can be squeezed out.
In many ways the actions of Almonty Industries Inc. (TSXV: AII) in the Tungsten space are a corralling of all the best properties on the global game board of Tungsten and that all others will have to pay dearly in any attempt to overtake or pass Almonty’s space without paying their due. Like any good Monopolist, Almonty knew what it had to do the startling thing was that all the other players were SO bad that they didn’t even try to emulate Almonty’s actions but instead just folded their properties, threw all their play money in the air and stamped off in a huff or went bankrupt.
In recent musings on Almonty we have done as much as one could to signal the obviousness and inevitability of Almonty acquiring “back” the famed Panasquiera Tungsten mine at Covilha, Castelo Branco, Portugal. If investors chose not to see the move coming then frankly they were not looking.
The brief history of the property is that it belonged until last decade to Avocet, that London-based blackbird of mining asset accumulators. It sold the Panasquiera mine in Portugal at the same time it exited its other Tungsten play, the Mount Morgan mine in California. The buyer was the TSXV-listed Primary Metals, which at the time was run by Lewis Balck and his team (that now run Almonty). Primary thus owned a 100% interest in the Panasqueira tungsten mine, which produced wolframite concentrates containing some 100,000 MTUs of tungsten trioxide per annum. The Panasqueira mine has a long history of production of high-quality wolframite concentrates and is the dominant producer of high-grade tungsten concentrates outside China. Indeed, the mine had been a key playing piece in international intrigues during World War II when it supplied much of Britain’s wartime needs for Tungsten for weaponry and machine tooling.
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Primary Metals was taken over for $54mn in 2007 by Sojitz Corporation, one of Japan’s leading trading companies, and thus disappeared from the public eye and access for investors wanting a pure play. For those in the know, it was clear in recent years that Sojitz found running a mine to be an alien activity to their skillset and losses mounted. In a sotto voce fashion the asset was put up for sale over the last year and it was evident to us that Almonty was the eventual buyer mainly because a goodly chunk of Almonty’s staff at the Los Santos mine in Spain were ex-Panasquiera miners, managers and engineers. The “brains trust” of Portuguese Tungsten mining was owned by Almonty.
The Art of the Deal
One can’t help but take one’s hat off to executives that manage to sell an asset for a certain amount of money in 2007 and then manage to repurchase it for less than 10% of what that sold it for less than a decade later. Thus the first week of January 2016 saw Almonty announce that it had acquired a 100% ownership interest in Beralt Ventures Inc. from Sojitz Tungsten Resources, Inc..
Beralt, is the owner of the Panasqueira tungsten mine. Almonty acquired 100% of the shares of BVI for €1.00 and purchased €12,260,000 in aggregate principal amount of debt owed by Sojitz Beralt Tin & Wolfram (Portugal), S.A., a wholly-owned subsidiary of BVI, to Sojitz Corporation of Japan in exchange for a cash payment of €1,000,000 on closing and a promissory note issued by Almonty in the principal amount of €500,000, bearing interest at 4% per annum, maturing December 29th, 2017.
The company also provided a summary of the NI 43-101 technical report expected to be filed on SEDAR within 45 days. This resource covers the state of the asset as at the 30th of June 2015.
One should have no delusions that this is Sojitz abandoning the Tungsten space. They are too big a player and the metal is too crucial to Japan’s industrial complex. One should not be surprised to see Sojitz maybe switch this debt into equity (even though it is not convertible) at some future Almonty financing. One should note the proximity of Sangdong to Japan’s industrial users as well as Japan’s desire to decouple from China dependence.
Monopoly! – Well Nearly..
Certainly corralling most of the Western World’s best Tungsten assets in a very short time has been something akin to “taking candy from babies”. To recap, Almonty now has production in Spain (Los Santos), Portugal (Panasqueira) and Australia (Wolfram Camp), and advanced project in Spain (Valtreixal) and owns the world’s former largest producing mine at Sangdong in South Korea.
In some ways it’s easier to catalogue what the competition outside China is (or was). We have Cantung (owned by the now bankrupt North American Tungsten) and Pasto Bueno in Peru (formerly owned by the now bankrupt Malaga). We might mention Ormonde (with its asset in Portugal effectively at the mercy of a hedge fund) and W Resources which has a project in Spain. Then there is Mt Carbine in Australia. Largo’s project in Brazil is also mothballed.
This makes it look like Almonty’s side of the Monopoly Board is surrounded by the smoking ruins of other wannabes and has-beens.
Tungsten Outlook – Worst is Past
It could be said that the Chinese not only shot themselves in the foot in 2015 in the specialty metals space, but they shot themselves in both feet. In Tungsten a metal that they wish to conserve and sometimes dominate they only succeeded in sinking the price, spooking the Western customer base and driving assets into the arms of Almonty. Well done!
Having realized the error of their ways and with the distancing from the worst of the FANYA debacle the price of Ammonium Paratungstate (APT) has started to tick up over the last month.
Prices in China in particular are leading the rest of the world with only slight recoveries for non-Chinese prices but a move up of nearly 10% in Chinese APT prices over the last month. This will inevitably knock on. From current levels of $175 per metric tonne unit, we are expecting Rotterdam prices to rebound to $325 at some time in the next 18 months.
We might say that Almonty is the 400lb gorilla in the Tungsten space. If the planets align and Sangdong gets into production over the next three years then it will reach 800lb gorilla status and will be the dominant feature on the Tungsten landscape (if it isn’t already). End-users are lining up to become part of the Almonty dominance story rather than be afraid of it, as it is the answer to everyone’s prayer to escape China dominance.
Almonty has set the standard for specialty metal consolidation. Now we need to see this trend replicated by upcoming players in Tin, Lithium and Antimony, to name just a few.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>