Almonty – Dominating Tungsten in Iberia
Few nations have had their fate hang on the future of one metal and even less so, where that metal was Tungsten. During the Second World War, the long-serving dictator of neutral Portugal, António de Oliveira Salazar, undertook a dangerous balancing act playing off the competing demands of long standing (hundreds of years) ally, Great Britain, against the threats and cajoling of Germany as both parties wanted access (and exclusive access at that) to Portugal’s Tungsten production, where it was the world leader. Tungsten was key to machine-tooling for the war effort and for the making of hardened tips for shells, bombs, torpedos and bullets as well as applications in other tanks etc.
With sheer cunning he managed to (sort of) keep both parties relatively happy eking out product to both sides in the conflict. The danger in the game was that Spain under Franco (as a German factotum) was sabre-rattling about joining the Axis allies and invading Portugal. Ironically Spain was the second-largest Tungsten producer at that time.
The irony was that the major mine in Portugal was actually British-owned and had been for a long time before the war. And that mine was the famed Panasqueira mine.
In the first days of the current year Almonty Industries Inc. (TSXV: AII) announced that it had acquired the Panasqueira tungsten mine in Covilha, Castelo Branco, Portugal. To us this was not exactly a surprise as there was massive logic on the side of Almonty doing this deal. Beyond that when I had gone in November to visit the Los Santos mine near Salamanca in Spain, one could hear more Portuguese being spoken than Spanish and this was due to the fact that Almonty had lifted many of the employees of the Panasqueira mine in the preceding years to help with its own advancement of Los Santos. And this in itself was the result of Almonty’s management formerly having owned the Panasquiera mine before selling it for, $54mn, which represented a very good price to a Japanese trading in the previous Tungsten boom last decade.
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Sojitz’s ownership of the mine was not a happy one. Basically traders don’t make good miners (yes, that includes you, Glencore). Therefore it became known early last year in Tungsten circles that Sojitz wanted out. Almonty’s deal involved acquiring 100% of Beralt Ventures Inc. from Sojitz Tungsten Resources, Inc. BVI, through its wholly-owned subsidiaries, is the 100% owner of the various rights and interests comprising the Panasqueira 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 Past Nexus
The back history of the Panasqueira mine was that it had been owned by the UK company, Avocet Mining PLC in the first part of the previous decade and that company sold it at the same time it exited the Tungsten space (also selling its Mount Morgan asset in California) in 2003. The buyer of the Portuguese mine was the then TSXV-listed Primary Metals, which was run by the current crew at Almonty. This gave Primary a 100% interest in the Panasqueira mine, which produced wolframite concentrates containing some 110,000 MTUs of tungsten trioxide per annum. The Panasqueira mine was the dominant producer of high-grade tungsten concentrates outside China.
Primary Metals was taken over 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.
The mining company was founded in 1896 to mine tungsten at Panasqueira as the industrial uses of the commodity were first being developed throughout the world. The mine is wolframite ore rather than scheelite.
In 1904, a new mechanized treatment plant was built near Cabeco do Piao (called the Rio Site), which was situated on the Zezere River for water supply. The first underground drifts were opened at Rio but mining activity decreased as richer veins were discovered at nearby Panasqueira.
Milling and treatment of the Panasqueira ore at Rio continued until September 1996, when the final concentration equipment began to be moved to Barroca Grande.
In 1911 the Wolfram Mining and Smelting Company was formed and purchased all the rights to the concessions including the facilities. In 1912, the new company made major investments in machinery and equipment, upgrading the Rio treatment plant and installing the first aerial 5,100m rope-tramway that brought the ore from different mining sites at Panasqueira to the Rio plant.
War has always been good business for Tungsten producers and the First World War saw a period of accelerated expansion and growth of the mining operation. The production rate was increased, the plant was enlarged and a furnace was installed. The number of workers at the mine increased to 800. Interestingly, the company allowed individuals to work small surface veins exposures workings in the concession area, an activity that involved approximately 1,000 people recovering small quantities of ore for sale back to the company.
In 1928, the Wolfram Mining and Smelting Ltd. reorganized and changed its name to become Beralt Tin & Wolfram Company (the name, Beralt, being derived from Beira Alta, the local region).
The tungsten price recovered in 1934 and stayed high through to the end of World War II. These were the years of peak production at the mine. Manpower increased from 750 workers in 1933 to 3,300 in 1940 and nearly 5,800 in 1943. In addition, there were approximately 4,800 individual miners working the small veins on the surrounding hills.
The tungsten price fell sharply again after the end of the war and only increased in 1950 due to the Korean conﬂict. Steady production was maintained with increased mechanization and increased production of tin and the introduction of the recovery of copper from the plant tailings.
Since 1974, the company has accelerated the mechanization of the underground operations in order to further reduce labour costs and changed the mining method from largely long wall stopeing to more mechanized room and pillar method.
When Primary Metals owned the mine (a period of 2 and a half years) it was producing around 110,000 MTUs per annum.
Under the Sojitz ownership the mine was totally renovated and is now state of the art.
If one’s goal is to be the major Tungsten producer outside China then the asset at the top of one’s wishlist has to be the Panasqueira mine. And to be the prime consolidator this is not an asset you can let fall to another party. So with a deep historical knowledge of the asset, combined with having a team that represents the “brain’s trust” on Portuguese Tungsten, Almonty were the best positioned to acquire this asset back and so they did and for a mere bagatelle compared to what they sold it to Sojitz for back in 2007. It’s a bit of a win-win even for the Japanese because they will get to be the prime buyers from the mine and have themselves positioned for when Almonty’s assets on the other side of the world (Australia and South Korea) hit their stride.
Because of the state of the art nature of the Panasqueira facility and the relative proximity to the Los Santos mine (and eventually Valtreixal) Almonty has been able to consolidate laboratories together, standardise purchasing and shift the maintenance function to the Portuguese mine’s workshops. The company has also identified opportunities to enhance cash flow through secondary metal bi-product production ( copper and tin) as well as enhancing tungsten production based on revamped mine plan. Ergo the benefits of economies of scale has started to accrue.
Prices have perked up ($190-200 per MTU) for the main traded Tungsten mineral (APT) since bottoming in January at $150. It’s still a fair way to go until we can say happy days are here again. However we cannot fault Almonty’s strategy of buying straw hats in winter particularly now that the sun is starting to peek through the clouds.
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>