Who has $400 million to spare?
As the global economy continues to splutter, few companies will be inclined to answer yes to this question. Therein lies the difficulty facing North American Tungsten, which hopes to exploit its massive Mactung deposit located 250 kilometres northeast of Ross River.
The project recently entered Yukon’s environmental review regime, and for the next eight months or so consultants will be slogging through the company’s 350-page proposal.
The Vancouver-based company hopes to start construction of the mine in 2010. Once built, the underground mine is expected to have a life of at least 11 years and to employ between 150 to 200 people.
But even if Mactung gets an early green light, the company will still need $400 million to build it. And, these days, few banks are lending that kind of money.
“It’s a big chunk of change,” said Chris Thompson, an analyst with Haywood Securities in Vancouver.
The most likely outcome would be for the company to strike a partnership with a major tungsten consumer, said Thompson.
But a lot could change in the next few months to upset what appears to be a solid business case for the mine.
Much depends on China, which produces 35 per cent of the world’s tungsten and consumes 85 per cent of the global supply.
But this insatiable demand may dry up as the consequences of the economic downturn set in.
As North American shoppers stay home, Chinese factories are closing en masse. Demand for raw materials, in turn, has slumped and commodity prices have plummeted.
Tungsten, so far, has been largely sheltered from the crash.
It’s currently worth about $230 per unit (10 kilos). That’s down from $250 per unit this time last year, but still far above the metal’s value of $60 per unit in 2004.
Tungsten is a niche metal. It’s best-known use is as the filament inside iridescent light bulbs, due to it possessing the highest melting point of all metals.
It is also second-only to diamonds in strength, making it a popular material to strengthen steel drill bits, saw blades and snowmobile studs.
And it’s denser than lead, making it a non-toxic alternative in the production of everything from fishing weights to armour-piercing bullets.
There’s not much of the stuff to go around. Global production is only about 80,000 tonnes a year. Until now, China’s gobbled most of it up.
Now some of China’s tungsten mines are closing as demand slumps. But these mines have poor-quality deposits compared to Mactung, said Thompson.
Mactung has probably reserves of 655,700 tonnes of tungsten-rich ore.
North American Tungsten, unlike many junior companies, already operates a mine that produces tungsten.
It’s Cantung mine in the Northwest Territories is expected to have enough tungsten to continue production for several more years - enough time, the company hopes, to get Mactung online.
So these next few years will be critical ones for the company, to “keep wolves from the door and the lights on,” said Thompson.
The company posted an $11.7-million loss for 2008. This is largely due to $9.9 million spent on replacing old equipment.
First-quarter showings for 2009 are more promising. The company earned a profit of $4.92 million.
If the company succeeds in securing the required capital to build Mactung, the global economic downturn will not be without a few perks. It will be cheaper to build a mine, for example, when the cost of steel and other supplies have crashed.
And the low Canadian dollar will also help the company woo American customers.
Thompson has been bullish about the company in past years. The company seemed to have a strong business case, barring any global economic meltdown.
Which, of course, happened.
Now everything has become much more complicated. Still, the mine’s fundamentals remain solid in Thompson’s view - provided it weathers the present storm and finds a partner with deep pockets.
He stands by past assessments that the company is undervalued.
In May the company’s stock topped $1.30. Today it sits at 14¢.
But, as Thompson says, “value is a relevant thing right now.”
Contact John Thompson at
johnt@yukon-news.com.