Emerging tungsten producer that’s focused on commercializing and developing its advanced Watershed tungsten project in northern Queensland – one of the world’s largest undeveloped tungsten deposits.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Tungsten | |
| Share Price: $0.028 | |
| 12-month Range: $0.015 – $0.06 | |
| Shares: 304m, Options: 80m | |
| Top 20: 54% | |
| Net Cash: $0.9m | |
| Market Value: $8.5m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q4 2014 Exploration Spend: $0.253m |
| Financial Security | ✓✓✓✓ | Q4 2014 Administration Spend: $0.314m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 45%, Admin. Spend 55% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q1 2015 Forecast Exploration Spend: $0.098m |
| Project Risk | ✓✓✓✓✓ | Q1 2015 Forecast Admin. Spend: $0.432m |
We introduced emerging tungsten play, Vital Metals, to our Portfolio during January 2015, based on its focus on developing its advanced Watershed tungsten project in northern Queensland – one of the world’s largest undeveloped tungsten deposits. The company has been persistent in terms of its project appraisal activity and after many false-starts it appears that Watershed could finally become a production reality, which is the basis of our upgrade from a Watch-List stock to Speculative Buy.
Tungsten is a metal that quite a large number of investors know very little about, particularly in comparison to say gold, copper or nickel. But it’s a very useful commodity that’s irreplaceable in a wide range of important modern-day applications, as well as lots of traditional uses. And there are very few new mines on the horizon. Watershed ranks as one of the 10 largest undeveloped tungsten deposits in the world, with a global JORC-compliant resource of 49.3Mt @ 0.14% WO3 for 70,400t of contained WO3.
Vital Metals has a key partner in the Japan Oil, Gas and Metals National Corporation, which has earned a 30% interest in Watershed through funding the DFS to $5.4 million. It is acting as match-maker to source potential off-take/funding/development partners to take the project through to production. Crucially, Watershed is fully permitted and hence development-ready, which should help facilitate financing. This situation contrasts with many other tungsten projects that need to go through the permitting process.
Watershed Project
The December 2014 quarter was a significant one for the company, with it reporting significant improvements to the key financial metrics for Watershed as a result of changes to key currency and operating cost inputs.
Vital Metals only recently released positive results from the Definitive Feasibility Study (DFS) for its Watershed Project, which has the potential to be a major western producer with output of ~3,200tpa of WO3 for an initial three years, with a life-of mine-average of ~2,500t of WO3 annually.
A recent review of the cost inputs used in the DFS and associated financial model has had a positive impact on overall project economics as a result of recent changes to exchange rates, diesel costs and labour availability. The stock is very strongly placed for 2015.
Elsewhere, Vital completed a strongly-supported Share Purchase Plan (SPP) that raised $1 million. Furthermore, joint venture partner JOGMEC continued to be active in terms of the transfer process of its 30% interest to a Japanese company that will become be a long-term off-take, financing and development partner.
The recently completed DFS review included:
- Revising the exchange rate to US$0.80 and US$0.75 as opposed to US$0.90;
- Applying a 15% reduction to operating costs over previous assumptions;
- Maintaining estimated capital expenditure at the same level as the previously reported figures (scheduled for review). At an exchange rate of US$0.80 and US$0.75, the estimated capital would be US$138 million and US$129 million respectively.
Table 1 above reflects project returns for a range of prices, an exchange rate of US$0.80 and a 100% equity case. The combination of a lower exchange rate and lower operating costs mean that the project will now generate similar returns at a price of US$375/mtu APT, compared to the previously reported case that used a price of US$450/mtu and an exchange rate of US$0.90. Life-of-mine cash costs are extremely competitive at US$156/mtu.
Table 2 below reflects an additional scenario that uses an exchange rate of US$0.75. A product price of just over US$350/mtu APT would generate similar returns to the previously reported case, with life-of-mine cash costs falling further to US$146/mtu.
Technical Significance
Vital believes it is reasonable to assume that many of these changes are here for the medium term or greater. In the case of oil and diesel, it appears that significant supply from resurgent US oil production and improved energy efficiency leading to a levelling of demand will lead to a fairly sustained period of lower diesel prices. The changes have combined to further enhance operating costs at Watershed.
Project Background
Watershed is one of the ten largest un-exploited tungsten deposits in the world, with a Measured, Indicated and Inferred JORC-compliant resource of 49.3Mt @ 0.14% WO3 for 70,400t of contained WO3. The project strength is its simplicity – a low strip ratio (3:1), open-cut mining operation, with a +65% low-contaminant, readily-marketable concentrate that will be produced using standard “off the shelf” ore-sorting, spirals and flotation beneficiation.
Vital Metals has a key partner in the Japan Oil, Gas and Metals National Corporation, which has earned a 30% interest in Watershed through funding the DFS to $5.4 million. It is acting as match-maker to source potential off-take/funding/development partners to take the project through to production. JOGMEC has already identified a number of potential partners for Vital and the completion of the DFS should be a catalyst for taking negotiations to the next step, which would then be arrangement of project financing.
Summary
Crucially, Watershed is fully permitted and hence development ready, which should help facilitate financing and allow for rapid development. This situation contrasts with many other tungsten projects that need to go through the permitting process. Tungsten consumers see supply risk for the metal given the Chinese concentration of production bans on concentrate exports and restrictions on APT exports, and thus are keen to diversify their supply base, with Watershed being ideally placed to tap into this potential demand. We therefore retain our Speculative Buy recommendation on Vital Metals around $0.028.
