Who would be a miner?
If your name happens to be Glencore, Anglo, BHP, Vedanta, Rio you might be wondering what kind of model made you think mining was a good business.
Years ago, I was lucky enough to meet the mining prospector who discovered the Cyprus Anvil mine in Canada. At that time it was one of the largest Zinc-Lead resources on earth. He described how he was dropped by helicopter onto the snowy sub-zero wastes of the Canadian Yukon and left with just his tent, food, ice-picks, shovels, and a shot-gun to ward off the grizzlies. His only means of exit was a rendez-vous at agreed map co-ordinates six weeks later.
Discovering that deposit was, in fact, the easy bit. Funding, developing, and managing, a mining resource like Cyprus for the long term or, in the case of, say, Rio Tinto’s Bingham Canyon, 152 years (and counting) requires persistence. In mining, one thing is a dead cert – odds on failure are higher than anything else. It is one thing mining high in the Yukon or down in the deserts of Utah, in locations where populations are small. But what mining house would make the job even harder and go digging in populous and regulated Britain?
It would appear there is one. Enter, Wolf Minerals.
My visit to Britain’s newest mine, in South Devon, on the last day of November 2015 is under the guidance of Health and Safety Officer, Andy Harry, on the day that first run-throughs of wolfram ore are being trialled. I stand at the top of a wind and rain-swept Hemerdon Hill and survey a panorama of outlying farms with sheep, 22,000 saplings planted by the mine owners, a solar panel farm and, at the centre, the 850 metre by 450 metre and 260 metre deep open-cast mine taking shape.
Across my line of vision I can see the mine waste facility being built up and am shown how it will gradually move across the landscape as the years go by. I see also the catch-pits into which run-off water is directed in a series of connected pools which act as filters to stop dirty water leaving the site. Meanwhile, earth-moving equipment lumbers across the landscape like yellow-painted dinosaurs. After all, we are not far from the Jurassic coast.
Strange as it may seem (and despite the lowest prices for tungsten in a generation) Wolf’s chances are not bad.
First off, Wolf does not represent ‘big mining’. Drakelands is Wolf’s only asset. Where big digging (and even bigger debt) is regarded by some as beautiful, Wolf sees mining beauty elsewhere. Listed in Australia, where mining is understood, this windswept reserve with a ten year renewable mining licence is, in mining terms, a tiny project that required just £123 mln of investment.
Second, Wolf has been clever choosing their asset. Rather than picking virgin terrain, Wolf has taken a second look at something that was already proven. At the MMTA we hear all too often from junior miners peddling an asset to raise funds based on an extrapolation of value for an element that at time of funding remains strictly in the ground – and unproven.
Drakelands is rather different. The site had been identified and mined for tungsten in Victorian times and, in the early 1970s, mining giant, Amax, spent £10 mln on pre-feasibility. But Amax never developed the asset because, by the time the work had been done, prices were poor. Wolf hopes, of course, that history will not repeat itself and there are good reasons for optimism.
Using www.measuringworth.com the £10 mln Amax spent is worth more than £100 mln in today’s money. In other words, Amax spent the same as Wolf, but Wolf’s money has gone on the more positive sides of digging – equipment, process, labour, health and safety, and product.
As a result, Wolf’s cash costs are relatively low. Measured in prices for APT (Ammonium Paratungstate), which is the benchmark for the market, break-even is about $108 per dmtu, according to Wolf’s brochure. Taken together with debt servicing, realised prices after the discounts to the APT price that Wolf receives for its Wolfram Ore to allow for conversion costs, the mine will not be wildly profitable right now. But with prices steadying at time of writing at $170-185 per dmtu for APT (Source: MB 16.12.2015), WO3 at $10-11 per kg WO3 , Ferro Tungsten at $21.50-$22.25 per kg W (Source: MB 16.12.15) Wolf will hang on in there.
The background factors cannot be changed and are beyond Wolf’s power – the ultra-dominance of a weakened China (forced to continue making and selling tungsten to keep people in work), the ascendancy of Vietnam as a competing producer, lower industrial activity both in China and elsewhere, reduced demand for Tungsten Carbide and EU laws banning tungsten filament and incandescent light-bulbs.
But, if prices and demand improve even slightly, Wolf and its customers are set to reap the benefit of eight years’ work since taking this project on in 2007 and now have a completed mine to show for it and the prospect of 35.7 mln tons of proven ore grading at 0.18% Tungsten (about 60,000mt or half the annual world demand of tungsten). Essentially, this is why I am here in South Devon being shown round a working mine and process facility and not just a glossy consultancy report.
A few days after my visit, by chance, I meet surveyor, mine and quarry owner, William Voaden, who tells me some of the history. While metal mining in UK was allowed to wither and die, quarrying was not. The area in which Drakelands sits is surrounded by reserves of English China Clay similar to the exhausted Cornish works adopted by Sir Tim Smit and turned into The Eden Project. Clay works, unlike other forms of mining, are relatively easily reclaimed by nature and actually become a magnet for wild life, like a sunken oil platform attracting fish and coral.
The history of mining in the West Country is long and deep. From the pre-biblical Cornish tin trade with the Phoenicians and Cyprus, exchanging tin for the bronze artefacts made from it, through to the Zinc mining of the Romans in the Mendips near my home in Somerset, the West Country instinctively sees mining as its friend. A mining job is a better form of farming when it comes to pay. In fact when Wolf agreed to re-build the road leading to the mine, the locals were won over instantly. It was more than Devon Council had done – and the sheep farmers where happy.
It is true that on one level Wolf’s fate does not lie in its own hands but with prices and customers – and the thing that will actually make or break Drakelands is customers. Those customers are largely Global Tungsten & Powders and Wolfram Bergbau und Hütten , in the USA and Austria. Eighty percent of Drakelands’ output is split on long-term formula sales to these two with the balance to be sold on the spot market.
Both GTP (the group formed by the merger of Plansee of Austria with Sylvania Osram) and Wolfram Bergbau (of the Sandvik group) have similar but separate reasons for wanting to keep this non-Chinese resource of Tungsten afloat. Synonymous with Tungsten, Wolfram Bergbau, whose Mittersill mine in Austria is a strategic asset, has a demand for low radioactivity ore – a grade that Drakelands can easily supply. While Wolfram Bergbau’s mine, discovered in 1967, is not exhausted, nevertheless the company fears depletion and would want to lengthen its life as an asset. GTP, meanwhile, do not own a mine but is one of the premier companies making all manner of downstream products out of tungsten, for industries such as aerospace and, as such, are vulnerable to the uncertainties associated with dependency on China.
You would have to ask, in all seriousness, whether these two groups would want to allow this new operation to expire? And what would be their interest in letting Drakelands fail?
Out of the 120,000 tpy world market for tungsten, although Drakeland’s 3/5,000 tpy output represents less than 5% of world supply, when you look at what this represents as a percentage of supply, excluding China, this rises to more than 25%. In the power-play with China this little corner of Britain may contain a counter-balance which has huge strategic significance to this close-knit industry.
The first thing in the mine’s favour, it seems to me, is price – but in a different sense to the one you might imagine. The memory of Ammonium Paratungstate (APT) prices at $350 per dmtu in 2008, when China had the tungsten market to itself, might be the spur to make GTP and Wolfram Bergbau think twice. To allow Drakelands to fail, would simply return control of the Tungsten market to China and return prices to damagingly high levels. Would this be better or worse for the two off-takers? As consumers and makers of downstream products of tungsten, it could be argued that supporting Drakelands in hard times will provide the balancing factor of local security of supply should prices rise sharply in the future.
Secondly, Drakelands does not reside in a conflict zone (unless it happens to be a night when the local Football team, Plymouth Argyle, has lost to Portsmouth) and tungsten mining is regulated under the Dodd-Frank agreement. All tungsten from Drakelands is by definition ‘conflict-free’, it is therefore certifiable for content in consumer goods for use by consumers worldwide who need to know for certain that their products do not contain conflict minerals damaging to their reputation.
Thirdly, as mentioned, Drakelands output will be low in ‘Uranium-plus-Thorium’ contents (less than 10ppm) which is appreciated by Sandvik/Wolfram Bergbau who generally demand the lowest radioactivity available.
Fourthly, the EU has defined Tungsten as a critical mineral. In other words it encourages tungsten production in Europe as a strategic counter-balance to China on fears that the largest producer might hold back supply.
But more than the foregoing, there could be one other over-arching factor that will ensure Drakeland’s success and survival. As I leave Hemerdon, having been shown through the process, I am struck by one factor above all – doing things right, from health and safety, to high standards in process, means ‘efficiency’ – and that very efficiency (not cutting corners) equals ‘low cost’.
Yes, choosing Britain in which to mine, must have caused some head-rubbing. UK has exacting standards; every emission is monitored, health and safety is paramount, wages are European, the Environmental Agency is stringent, and mining licences can be withdrawn. But – and I am commenting here as a UK citizen more than a merchant – isn’t it good to see mining done to high standards? We know it can be done, and yet so often, out of sight and out of the glare of London, in developing countries, corners are cut and standards are low; justified by the mania to keep costs down but usually at the cost of the environment or people.
It would be my hope that Wolf will prove that doing right is good for both profit and survival.
Perhaps, then, Drakelands could indeed be the most popular mine in the world – and Plymouth Argyle Football Club, top of League Two of the English League at time of writing, will get promotion?
Michael Foot, its MP, post-war, in 1945 during the Attlee Government, and later leader of the Labour Party, who once said he would only die after Plymouth Argyle reached the Premiership, would be proud.
Published in The Crucible, January 2016