Tim Treadgold: Why Wolf’s slide could be coming to an end
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Tungsten is a tough metal in more ways than one — a fact that Wolf Minerals, a small Australian miner with big ambitions in Britain has discovered.
Regular readers of Stockhead might remember an earlier story which contained a timely warning about the potential for tungsten share price weakness.
It was back in September that the challenges confronting the company were covered here — a story which preceded a fresh slide in the company’s share price.
Back then Wolf, which is listed in Australia and London (ASX:WLF, AIM:WLFE), had been trading as high as 11.5c.
It slipped to 9.4c when Stockhead brought the company to the attention of its readers and then progressively down to a 12-month low last week of 4.5c.
Wolf has been hurt by a combination of factors including a weak market and low prices for tungsten — a metal used to harden steel (think tungsten-tipped drill bits) — and problems at the company’s historic Hemerdon mine near Plymouth in the west of Britain.
The question today is whether all the bad news is out and whether the next 12 months might be kinder to Wolf.
While no-one is sticking their neck out to predict a substantial recovery, it is worth considering some of the comments in last week’s June quarter report from the company.
For the first time this year Wolf was able to note a pleasing increase in production of tungsten and tin at Hemerdon — which it has renamed Drakelands mine in honour of Francis Drake, the famous British seaman who used Plymouth as a base for his pirate raids on Spanish ships and later beat back an attempted Spanish invasion of Britain in 1588.
The price of tungsten has also been rising, reaching a five year high during the June quarter of $US347 per metric tonne unit — the obscure way in which the specialist metal is traded.
Wolf is not claiming that it has solved all of its problems, especially on the question of ongoing funding requirements which have seen it supported with generous loans from the specialist mining investor, Resource Capital Fund.
Discussions with its bankers are continuing, Wolf said, with fresh funds required “to ensure that the company has sufficient working capital to meet its short-term requirements to continue as a going concern”.
There is a heavy legal implication in the use of the words “going concern” because if a company can’t pay its bills as they fall due it can signal the end.
Bankers obviously understand Wolf’s situation and as they consider feeding Wolf an extra serving of debt it might be time for investors to look on the bright side of the business because if the fresh funds are forthcoming than Wolf might be facing a brighter future than its immediate past.
Share-price trend could be positive
And that’s the point of revisiting Wolf after last year’s story which warned of a possible price slide whereas this year the share-price trend could be positive rather than negative.
Hurdles remain to be cleared before Wolf can break free of a sticky past which has hurt earlier owners of a project which is one of the few metallic mines in Britain, and which produces a metal which does best during a war thanks to tungsten’s use in armaments.
The first hurdle is to continue demonstrating that the mine and process plant can operate without upsetting nearby local residents, a seemingly small problem but one which saw government authorities limit working time at the process plant, which also means limiting tungsten output.
The second hurdle is to successfully integrate a pre-processing ore sorting trial which will see the raw material going into the plant at a much higher grade which could boost metal recovery and cash flow.
Tungsten prices should stay high
The third hurdle is for management to keep its collective fingers crossed and hope that the tungsten price stays high, which it should given the environmental clean up in China which is limiting the supply of most metals from sub-standard operations.
The tungsten price trend, despite the opaque nature of the market, looks encouraging. Two years ago, when Wolf was struggling to overcome problems in its mine and process plant the tungsten price was around $US187/t.
Last year, when Stockhead took its critical look at the stock the tungsten price was $US269/t, rising to the $US347/t mentioned by Wolf in its June quarter report which means that in two years the price of the metal has risen by 85% — which 6% of that coming over the past three months.
A cautious investor is not going to rush out and buy Wolf shares, but a speculator with an appetite for risk might start dusting off his file on Wolf, keeping an eye on the company’s funding deal and the tungsten price because the trend is quite interesting.
If nothing else, Wolf could be a handy acquisition for a predator given that the company has a modest market value of $A49 million on the ASX, a fraction of the estimated $A220 million cost to build.