Construction underway at Hemerdon
Wolf Minerals, the UK-based tungsten developer, has asked its engineering, procurement and construction (EPC) firm GR Engineering Services (GRES) to start construction of the Hemerdon tungsten project. According to Wolf’s development timeline, this would mean that commercial production would occur in mid-2015. Hemerdon is fully permitted and construction is underway of the open-pit operation. Processing is also low risk (and environmentally friendly) with tungsten removed from the ore mainly via water and gravity.
GRES 24-month EPC contract fixed price and term
GRES has been appointed a £75m fixed-price contract with a fixed delivery period of 24 months, which started in June 2013. The contract includes commissioning and performance guarantees. While we have no visibility on what these guarantees are, GRES is a well-established Australian firm specialising in the construction of mine sites and processing plants. GRES has completed projects for small- to mid-cap mining firms, as well as the majors, including Xstrata and Newcrest.
Project financing in place to commence construction
Wolf has secured and executed its two main debt facilities. The first amounts to £49.1m (US$82.0m) held with Resource Capital Fund V. This is split in two, with repayment of the £44.9m (US$75m) Bridge Finance Facility due in June 2014 and £4.2m (US$7m) paid upfront in consideration for purchase of a 2% royalty on future gross revenues on all metals produced from Hemerdon. The second main funding tranche comprises £75m in senior debt, including a £5m project bond facility held with ING, Unicredit and CAT Financial. Drawdown of this commences on payback of the aforementioned Bridge Finance Facility and has a repayment term of 5.5 years.
Valuation: W supply limited, demand strengthening
The price of ammonium paratungstate (APT), the primary traded tungsten product, currently fetches US$368.5/mtu, having declined from its peak of US$417.5/mtu in June 2013. The 2011 Hemerdon DFS used an APT price of US$360/mtu. While the price of tungsten has declined, the fundamentals for a robust price going forward are evident from China’s dominance in the market. According to Wolf, China holds c 60% of the world’s tungsten reserves, accounts for over 60% of demand and 80% of global supply. A stable supply outside China is sought after and Hemerdon is the only western tungsten mine to enter production in the near term.
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