Barry FitzGerald: The OG 'critical' metal is back - and there's big money behind this junior doubling

A long time ago when Garimpeiro was a young man there was little if any talk about critical and/or strategic metals.

Nowadays, it seems all metals are critical and/or strategic.

There are good reasons behind the shift.

But increasingly it smacks of boosterism by producers wanting their particular metal of importance to be classified as strategic and/or critical so they can qualify for handouts from governments which like to be seen to be doing something, when something might not need to be done.

So today Garimpeiro is reverting his critical and/or strategic metals focus to the metal that he knew to be a critical and/or strategic metal when he was a young man – tungsten. Think of it as the original critical and/or strategic metal.

It is undeniably so as it is a metal of economic importance, it can’t be substituted in its key applications, and 80% of the supply is controlled by our friends in China.

Having the highest melting point of all metals (3410°C), and being the hardest of all metals, tungsten has a myriad of uses in the aerospace and defence industries, mining equipment, construction and the automotive industry, among others.

There are some new high-end applications coming along like nano-wire. Even so, the overall tungsten market is not a big market at around 100,000t annually. But assuming just GDP-type growth in consumption, a supply gap is forecast to open up in the back half of the decade.

More mines are needed, and more non-Chinese mines are needed given China’s demonstrated willingness to mess with supplies of metals in which it dominates to make a political point.

Hot metals

It is against that backdrop that there has been a resurrection of a tungsten sector on the ASX, limited as it is to two producers – EQ Resources (ASX:EQR) from the Mt Carbine mine near Cairns, and Group 6 Metals (ASX:G6M) on King Island.

Both have been producing mines in the past. Group 6 has just recently officially opened its high-grade King Island operation so Garimpeiro will come back to it at a later stage, making EQ today’s focus.

EQ has spent three or so years bringing Mt Carbine back in to production, initially from low-grade stockpiles. An increasing portion of higher-grade hard-rock ore from a re-developed open cut is now part of the mix.

When in full flight the operation will be a significant earner for a company with a $100 million market cap (6.4c a share mid-week), given the margins to be had on the current tungsten price (around $US310 a metric tonne, or 10kg).

But EQ has recently taken itself to the next level by securing a deal to acquire the Barruecopardo tungsten mine in sunny Spain. The deal is yet to complete on standard conditions but when it does, EQ becomes the world’s biggest source of non-Chinese tungsten. Olé!

Barruecopardo has had some issues in the past but the transfer of EQ’s technical nous in using ore sorters (less mass and a higher grade) at Mt Carbine is being banked on to make the operation hum, as has been the case at Mt Carbine. Early use of an ore sorter at the Spanish operation has been hitting targets, and more are on the way.

The powerful global investment manager Oaktree is the seller of Barruecopardo for a nominal sum and the assumption of debt by EQ. But as a fan of the tungsten thematic, Oaktree is recycling $25 million back in to EQ by taking up a 15.8% placement at a premium to the market price.

Morgans and PAC Partners like the EQ story. They have price targets on the stock of 13.1c and 15c respectively. So potentially at least, they see EQ as a doubler inside of 12 months thanks to what is has been achieving at Mt Carbine, and what is to come from Barruecopardo.

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