King Island in Bass Strait was famous in mining industry circles for the world class Dolphin tungsten mine near Grassy on the southeast coast long before gastronomic types began to rave about its beef and triple cream brie cheese.

The high-grade mine operated intermittently between 1917 and 1992, with tungsten’s critical role as a steel hardener giving rise to prime years for the operation during the First and Second World Wars, and the Korean War.

The operation’s closure was due to low tungsten prices at the time, and the project being too small from a strategic point of view for the then owner, North Ltd (acquired by Rio Tinto in 2000 for its iron ore and uranium interests for $2.8 billion).

While Dolphin was too small for North, it is just the right size to be a company maker for the junior that has held the project since 2005, ASX-listed King Island Scheelite (ASX:KIS), trading at 7c for a market value of $18.5m.

King Island Scheelite (scheelite is a tungsten ore) is backed by a bunch of guys who made their name in coal, most notably in ASX-listed Excel Coal, which was acquired by US group Peabody for close to $2 billion in 2006.

Among their ranks is King Island Scheelite executive director Chris Ellis, who holds 22 per cent of the company.

Ellis recently provided the company with a secured $2m loan so it could maintain the momentum in returning Dolphin to production.

Despite its long production history, during which 10 million tonnes of ore grading 0.67 per cent tungsten trioxide was mined, Dolphin’s modern day total resource stands at 9.6 million tonnes grading 0.9 per cent (anything above 0.4 per cent is considered high-grade), including 3 million tonnes at 0.73 per cent in reserves remaining in the dewatered open-cut.

A revised feasibility study released in June envisaged the mining of 400,000 tonnes per annum of ore from the open-cut for 8.5 years to produce 215,000 metric tonne units (a mtu is 10kg) of tungsten concentrate.

The capital cost was put at $65m with capital payback, after a 15-month development timeline, put at 2.75 years, assuming operating costs of $129/mtu.

Tungsten is regarded as one of the world’s most critical metals (because of its hardness properties across the transport, mining and construction – and defence industries), and one of the most strategic (because China produces and consumes more than the 70 per cent of production).

Given the ongoing US-China trade war, and rising concerns around other critical/strategic materials like rare earths and cobalt, you would be forgiven for thinking tungsten would be enjoying buoyant pricing.

Prices have firmed in recent years, with prices for ammonium paratungstate (APT) hitting $US348/mtu ($465/mtu) in June last year, the highest level since June 2015.

(Dolphin’s concentrates would generally receive about 80 per cent of the reported APT price).

But APT prices then began to fall and traded in a $US260-$US280/mtu range until June this year, with another move lower in recent weeks to around $US200/mtu in what is expected to be a short-term low caused by this week’s expected auction of a 25,000t stockpile by the liquidator of a failed Chinese metals exchange.

King Island Scheelite executive chairman Johann Jacobs told 250 mining types at the Melbourne Mining Club’s “Cutting Edge’’ investor briefing last week that once the auction was out of the way, the expectation is that prices will return to $US260-$US280/mtu.

“We believe the price will go back to that level because China has imposed very significant operational controls on operations, and because the industry believes that the breakeven point for Chinese production is around $US220/mtu,” he said.

Dolphin’s development prospects were enhanced recently with the signing of a supply offtake with the Austrian tungsten arm of Swedish engineering and tooling group Sandvik covering 20 per cent of planned production.

Jacobs said King Island Scheelite was “fairly well advanced’’ with two more two offtake agreements which will cover another 60 per cent of production.

He added that in the next couple of weeks King Island Scheelite would be reporting a revised resource estimate for an adjacent deposit which was mined in the 1960s and 1970s.

“Then we will work on our financing plan to get the mine in to production,” Jacobs said.

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