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WOF/WFEMF Mining Weekly Article on Buffet Investment

Korean tungsten project gets Berkshire Hathaway investment
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By: Matthew Hill
29th February 2012
Updated 2 hours 42 minutes ago
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TORONTO (miningweekly.com) – He may not like gold much, but billionaire Warren Buffet has taken a shining to tungsten – the metal with the highest melting point.

Berkshire Hathaway unit IMC International Metalworking Companies this week agreed to invest around $80-million in TSX V-listed Woulfe Mining’s Sandong project in South Korea, which was once the biggest tungsten producer.

The deal involves IMC buying a 25% stake in the shuttered mine for C$35-million, investing C$19.25-million in a joint venture to build a plant that will produce ammonium paratungstate (APT), the metal’s tradeable form, and agreeing to provide up to C$15.75-million in a loan to fund Woulfe’s share of the capital cost of the plant.

The mine at Sandong as well as the APT plant are set to start producing early in 2013, when the operation will reclaim the title as the world’s biggest producer, accounting for 7% to 10% of global output – and half of non-Chinese supplies, Woulfe CEO Brian Wesson told Mining Weekly Online.

To get there, the company will need to raise around another C$80-million in debt.

Woulfe will look to use a feasibility study due out in “the next few weeks” to do this, with Wesson hoping to finalise the funding around June.

That will bring the total financing for Sandong and the APT plant up to around C$150-million, with capital cost estimates currently at C$135-million.

Given the strong performance of Tungsten prices over the past two years, and the attractive economics of the project, Wesson does not foresee any problems in raising the additional financing required.

Prices for the metal, used make wear-resistant abrasives and cutters for the metalworking industry, were $18 000/t when Woulfe bought the Sandong project in 2009.

Today, they have reached around $44 000/t, as demand grows and China, as is the case of rare earth elements, has curbed exports. The metal is usually quoted in metric ton units, with Metal Pages listing the most recent price at about $435.

Rare earths prices showed even more drastic meteoric rises throughout 2010 and into the first half of 2011.

However, these rocketing prices turned out to be their own worst enemy, as buyers retreated from the market and began intensively developing alternatives.

Wesson is not expecting tungsten to follow a similar scenario.

“Even at a price of $600 it would never pay to go to equivalents. The issue with tungsten is, you can’t machine steel without it, you can’t roll steel without it,” he said.

“To create economical alternatives would be very difficult, very pricey and take many years.”

GOLD LINING

But while Berkshire Hathaway might be going after the tungsten – it bought an 80% stake in IMC in 2006 for $5-billion, and Buffet gave speech at the sod-turning of a major expansion at the company’s South Korea plant last year – shareholders in Woulfe have a potential gold kicker too.

The Vancouver-based company also owns the Maguk gold project in South Korea, which Wesson said was the country’s biggest producer.

With prices hovering around $250/oz, the operation closed in 1997.

Now, Woulfe is hoping an investment of around $30-million will allow it to reopen the mine and produce 50 000 to 60 000 oz/y.

A preliminary economic assessment, due out in early March, should provide a better outline of the potential production and economics.

While open, the mine produced from average ore grades around 11 g/t.

Wesson concedes that it is “probably not ideal to mix tungsten and gold”, adding that Woulfe would look to either listing Maguk separately, or unbundling it to shareholders at some point.
http://www.miningweekly.com/article/korean-tungsten-project-gets-berkshire-hathaway-investment-2012-02-29