Investing in Tungsten

The tungsten industry is largely characterized by dependence and uncertainty, but there is also the potential for profit. Tungsten prices have gone from about $180 to $430 per metric ton unit (mtu) over the course of three years. Last year, highs of up to $500/mtu were reported.

"That [the factors noted above] is why a company like IMC, which is 80 percent owned by Warren Buffet, would come to Woulfe Mining and want to purchase 25 percent of our tungsten project, and more importantly is guaranteeing to buy 90 to 100 percent of all the resource we can produce," said Smith.

He also said that people who have tungsten mines in operation, or about to come into operation outside of China, are in a very strong position not only to provide tungsten to the western world, but also to China, which has become a net importer of the metal.

But, Tungsten Investing News, asked Smith, are there other opportunities in the market like the Woulfe-IMC deal, where end users are looking to establish a relationship?

"Yes," he said. "I think that most people that are producing resources will be having similar conversations."

The interest in obtaining a supply outside of China is growing, and is a trend that is likely to continue. But while there are attractive opportunities, the risks must be assessed as well.

One risk is that China will engage in practices that reduce or impair competition in the mining space and among end users. This situation could occur in a variety of ways, such as through a restriction of supply or the flooding of the market and lowering of prices below economically viable levels.

To ignore these possibilities would be to overlook history. In the past, China has flooded the market with cheap tungsten, lowering the price the price of WO3 concentrate and APT, and causing exploration companies, miners, and, processors to close their businesses.

Ecclestone said, "the Chinese as both the largest producer and one of the main users have a vested interest in higher prices but that does not mean that they may not push prices down to achieve other policy or strategic goals."

With regard to supply disruptions that benefit Chinese toolmakers while hurting foreign competitors, Ecclestone noted that "if any investors doubt that that might happen then they would be naïve indeed."

This comment highlights one of the reasons why offtake agreements, contracts in which a buyer commits to future purchases, are especially attractive in the tungsten space. By signing them, miners are able to secure sales, a commitment that translates into reduced risk to equity investors.

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