Argus reckons that global tungsten fundamentals are hanging in the balance for 2022 with supply chain disruptions, rising production costs and higher global infrastructure spending likely to support prices.
But prolonged underperformance in the automotive and aerospace sectors are threatening to suppress demand growth.
“Consumers, producers and traders in Europe saw strong downstream demand for the first quarter of 2022, which encouraged buyers to build higher ‘safety’ stocks this year,” Argus deputy editor, metals, Anuradha Ramanathan said recently.
“Many automotive OEMs continued to produce parts this year to avoid another bottleneck when the expected semiconductor chip shortage eases,” she said.
“The auto sector accounts for around 28pc of total tungsten demand, with carbide cutting tools used in vehicle manufacturing and for producing mechanical parts.”
Tightening Chinese spot supply could push up the price
Chinese tungsten producers continue to face depleted high-grade resources and increased production costs because of environmental laws, labour costs and safety guarantee costs, which left ammonium paratungstate (APT) offers firm in December.
“As the world’s largest tungsten exporter, China’s production levels, ore grades and government policy give the wider market price signals, while as one of the world’s largest tungsten consumers, domestic demand and consumer reference prices for tenders also support the market,” Ramanathan said.
“With China backing a ‘zero tolerance’ stance on stemming the Covid-19 spread, global trade could witness a sudden and complete halt in imports and exports — such as with the closure of Ningbo port earlier this year — which could tighten tungsten spot supply and push up costs.”
Essentially this concern is what’s underpinning higher prices in Europe and the US market.
Ramanathan flagged that European prices for APT with 88.5pc tungsten trioxide content rose by nearly 39 per cent since the start of 2021 to $320-325/mtu in early December, which puts the year-to-date average at an increase of 68 per cent to $285/mtu compared with the 2020 average of $217.87/mtu.
Rafaella nabs strategic EU tin and tungsten projects
One ASX listed stock making moves in tungsten in Europe is Rafaella Resources (ASX:RFR).
Last year the company joined the Critical Raw Materials Alliance, a representative body of primary producers, traders and associations of critical raw materials.
Tungsten has been identified as a CRM by the European Commission and is gaining increasing attention from policymakers across Europe as governments look to address the very real supply chain risk arising from 85% of the global supply of tungsten concentrate coming from China.
The company already owns the Santa Comba tungsten and tin development project in a productive tungsten and tin province adjacent to critical infrastructure in Spain, and in November 2021 announced plans to acquire two tungsten projects – Borralha and Vila Verde – in northern Portugal for €4 million.
The consideration is conditional on the independently assessed JORC compliant resource for the Borralha project’s 25,000t of tungsten trioxide at a minimum grade of 0.14% WO3 (tungsten trioxide).
Both Borralha and Vila Verde Tungsten projects lie 210km and 250km respectively from the Santa Comba project and have long mining histories dating back to the early 20th century.
Plus, just this week Rafaella revealed it had acquired Tungsten San Finx S.L.U., the owner of the San Finx tin and tungsten mine, which is only 50km south from Santa Comba.
Exposure to record prices at low cost
It’s a smooth move, with the company increasing its exposure to tin at low cost with terms of the San Finx acquisition including no upfront payment – with the €5m consideration payable out of production royalties only after 1,000t of metal has been produced and sold.
Where the average price during the quarter for tungsten exceeds US$300/mtu and the price of tin exceeds US$33,000/t, then 5% is payable.
“What’s important to note is that we actually don’t pay any royalties at all until we’ve sold our first 1000 tonnes of metal – and that’s over $30 million worth of revenue,” Rafaella MD Steven Turner said.
“So, we actually generate $30 million of revenue before we even start paying any royalties, that effectively subordinates our royalty stream to any sort of debt funding or any other sort of funding that we might put in place.”
Not to mention it’s another arrow notched to Rafaella’s bow at a time of record tin prices.
“Tin is up 100 per cent of the last 12 months, it’s just shy of $40,000 a tonne,” Turner said.
“And with tungsten, APT is sitting at $22 at the moment, it’s up 50 per cent just on 12 months and over the last two years, it’s significantly more than that.
“What we have done is we’ve built at a very, very low cost, a sizable inventory of tin and tungsten, all within the same belt, all within a relatively short distance of each other, to the point where we may even get synergies right across all four projects.”
$RFR Our €5m deal to buy the San Finx mine in northern Spain https://t.co/pVtYQtX4I7 will help us become a leading Western European supplier of tin & tungsten. With no upfront payment the deal will be funded by future royalties from San Finx. #tungsten #miningnews #miningspain pic.twitter.com/RESpE87Rj6
— Rafaella Resources (@RafaellaRFR_) January 4, 2022
Well-placed to supply Europe and US
Turner said the three acquisitions strengthen the company’s strategic position in the Iberian Peninsula, where it’s well placed to supply to US and European markets.
“Santa Comba is 60km from a deepwater port, San Finx is very similar, because we’re in the northwest corner of Spain and Portugal and pretty much the closest access from Europe to North America,” he said.
“North America has no tungsten production and Europe is very short on tungsten as well. When we spoke to offtakers, they are very, very keen to lock in supplies from Spain and Portugal.”
He also pointed to the movement in Europe to supply critical minerals, as it’s heavility dependent on imports.
“The European Commission is increasingly focused on how to secure raw materials from within Europe and we are now sitting on four assets, so that really bumps us up in terms of the influence and position when we sit down and talk with the European Commissioner about ways that we can get support going forward.”
Plus, the company can now ramp up or down projects to meet supply – and offers less risk to offtakers with resilience to operational issues that might cripple a single mine supplier.
The Santa Comba’s feasibility study will be released in the coming weeks, with the maiden JORC mineral resource estimate for the Borralha and Villa Verde projects to follow.
ESG high on the agenda
The company bought San Finx off Tungsten San Finx S.L.U., a subsidiary of Valoriza Mineria S.L.U. who’ve been selling off their assets to exit the mining business.
Commercial terms of the acquisition include that Valoriza will provide ongoing environmental support, having invested heavily in the environmental study work, especially concerning the water treatment.
And Valoriza will assume full cost for restoration should the water discharge permit not be granted, which significantly de-risks the acquisition for Rafaella.
The company intends to pursue renewable power options for all four of its projects going forward, having already signed an MoU with Capital Energy to explore the supply of green energy from their existing renewables portfolio through the development of a dedicated plant.
But demand uncertainty could play out until 2H FY22
While Turner is confident in tin and tungsten prices, Argus says uncertainty hangs over tungsten demand outlooks for the second quarter and second half of 2022, largely because the global semiconductor shortage could curb consumption by the automotive sector and fresh waves of Covid-19 may further delay the recovery of aerospace demand.
“The emergence of new, highly transmissible Covid-19 variants poses a major risk to global trade, supply and demand for tungsten,” Ramanathan said.
“Meanwhile, the semiconductor shortage continues to dent global vehicle production, which has also been reduced despite better-than-expected auto demand in the immediate aftermath of the 2020 Covid lockdowns.
“Consultancy AutoForecast Solutions estimates that North America may fall 3m vehicles short of its 2021 production plans, while consulting firm AlixPartners expects around 7.7m fewer vehicles have been produced this year.”
And further vehicle production cuts in 2022 could dampen tungsten demand and potentially push suppliers to destock, which would weigh on spot prices.
The outlook is for prices to flatten out towards the end of the year before declining gradually into 2022, Ramanathan said.
The post Tungsten could be walking a supply-demand tightrope but this company has high hopes for the European market appeared first on Stockhead.
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