Wolf Minerals (ASX: WLF, Share Price: $0.38, Market Cap: $307m) is an emerging tungsten producer focused on the development of its world-class Hemerdon Ball tungsten-tin project in Devon, southwest England. We introduced the company to our Portfolio during February 2013 at buy-in prices of between $0.22 and $0.30. The Hemerdon project is scheduled for first production during H2 2015 and is one of the few new sources of tungsten currently under development anywhere in the world.
The recent completion of a six-hole geotechnical drilling program has led to the announcement of a sizeable 34% increase in the project’s overall tin and tungsten reserves, boosting mine life by 3 years.
Market Significance
Wolf Minerals share price has surged from a recent low of $0.23 during January 2015 to a recent high around $0.40 – a 74% price increase in just a matter of months. The key to the Wolf story has been its ability to meet all deadlines with respect to its Hemerdon project and importantly the company remains well on track to meet its commissioning goal of first commercial production and off-take from Hemerdon during H2 2015. What distinguishes Hemerdon is its overall size, with its long-life, low-cost status allowing it to become the supplier of choice for tungsten consumers wanting alternative supply sources to China.
Announcement Detail
Wolf Minerals has advised of a 34% boost to tin and tungsten reserves at its Hemerdon project in the UK. The new Ore Reserve comprises 35.7Mt at 0.18% WO3 and 0.03% Sn (using a 0.063% WO3) cut-off).
Consistent with Wolf’s project expansion plans, the drilling program was designed to better understand the strength of the wall rocks with a view to steepening the final pit slope, resulting in a deeper open-pit and increased Ore Reserves. The new pit design takes the pit floor approximately 65 metres deeper than previously envisaged and boosts overall mine life by three years from the previous nine.
Technical Significance
In prior coverage we’ve referred to the recently-completed six-hole diamond drilling campaign around the perimeter of the company’s Hemerdon open-pit, which was designed to provide additional geotechnical information to optimize the slope angles for the pit.
The majority of previous drilling work undertaken at the Hemerdon site concentrated on the ore body, rather than the surrounding waste rock. As a result, pit slope angles were conservatively designed at between 35° and 44°, with flatter slopes near the surface reflecting weathered rock conditions. SLR Consultants supervised the recent drilling program and assessed the geotechnical qualities of the rock within the perimeter of the open-pit.
The results indicated that as a result of steepening the open-pit walls and broadening the open-pit perimeter within the existing planning permission, an additional 4 to 6 million tonnes of ore could be accessed for mining, along with the potential for an increase in ore reserves of between 15% and 23%.
The just-announced upgrade has therefore exceeded both our and the company’s expectations.
Furthermore, there is the potential for additional reserves to be identified, should a change in the planning permission’s open-pit boundary to allow access to the Southern Extension, be accepted.
A typical cross section of the open pit is shown below, and shows the increased Ore Reserve that has resulted from steepening the pit walls.
The increase in pit depth is such that it extends into Inferred material below the bottom of the majority of the drill-holes in the deposit. As such the current pit design includes granite mineralisation that cannot be reported as Ore Reserves under JORC 2012 guidelines. However, Wolf intends to undertake additional work to increase the confidence of the resource at depth, resulting in the potential to further increase the 2015 Ore Reserves and further extend the mine life.
Project Background
Wolf acquired the Hemerdon project during 2007, which incorporated a pre-existing “Planning Permission” that was updated during 2011. As part of the parameters of the approved Planning Permission, the proposed open-pit boundaries were predetermined and a Proven and Probable Mining Reserve of 26.7Mt @ 0.19% WO3 and 0.03% Sn was determined. Wolf has the right to seek permission to extend the pit boundaries to access additional ore, enhancing the overall scope and potential returns of the project.
A Definitive Feasibility Study (DFS) was completed during May 2011 that highlighted robust project economics based on a 3Mtpa operation over a 9.25-year life of mine. Production is estimated at ~350,000 mtu annually of a 65% tungsten concentrate and a further ~450tpa of tin-in-concentrate. Current mining reserves are bound only by current open-pit limits.
The Hemerdon DFS is based on 9.25-year mine life (limited only by the existing planning permission) with a throughput rate of 3Mtpa to produce 350,000mtu per annum (3,500t) of a wolframite tungsten concentrate with a grade of 65% WO3 – and a further ~450tpa of a 40% tin concentrate. The DFS indicated a project NPV of £74m (A$114m or A$1/share) and assumed an APT price of US$360/mtu (APT price can be used as a proxy for 65% WO3) and a tin price of US$30,000/t. The tungsten market has strengthened since the release of the DFS in 2011, with the current price range of US$370-390/mtu.
Summary
The long-life, low-cost nature of the Hemerdon project means that it has every chance of becoming a supplier of choice for international tungsten consumers. The tungsten market has strengthened since the release of the DFS, with growth occurring in all major regions around the globe. The 34% increase in Ore Reserves that has resulted from steepening the open-pit walls within the existing planning permission boundary is effectively an increase in mine life of 34% – or around three years, assuming a five and a half day working week. The project remains on schedule and is fully funded and commissioning of some of the installed equipment has commenced, with a view to introducing ore into the plant during July 2015.
Accordingly we retain a Speculative Buy recommendation on Wolf Minerals for those investors without existing exposure.
