Tungsten

[Tackler]

DYN Dynacor Mines to purchase Pasto Bueno mine

2005-07-05 08:40 ET - News Release

Mr. Marc Blais reports

DYNACOR TO ACQUIRE TUNGSTEN MINE

Dynacor Mines Inc. has entered into a letter of intent to acquire a 100-per-cent interest in the Pasto Bueno mine owned by Minera Malaga Santolalla S.A.C. The mine is located in northern Peru, 830 kilometres from the city of Lima. The property consists of 24 concessions for a total of 400.55 hectares, and the mine produces primarily tungsten, but there is also copper, zinc, lead and silver. The mine, which stopped its activities in 2003, has two mills with 250 tonnes per day and an 800-tonne-per-day capacity.

Mine production started in 1939 and the company was incorporated in 1941. In 1981, production was up to 1,000 tonnes per day. The mine also has two hydroelectric plants of 100- and 1,000-kilowatt capacity. The tungsten quality rating is still referred to as Malaga quality, because the tungsten produced at this mine was one of the finest worldwide.

A European company, which formerly had an interest in the mine, invested $3.6-million (U.S.) to develop reserves and increase mill capacity before the price for tungsten decreased to approximately $30 (U.S.) per metric tonne. When the mine closed in 2003, records located at the mine indicated an average grade of the production of 1.5 per cent tungsten trioxide (WO3) and 2.7 per cent copper. The prices for tungsten have recovered in the past few months from $50-(U.S.)- to $160-(U.S.)-per-tonne units.

Terms of the agreement

Dynacor will have until Nov. 6, 2005, to complete due diligence and definitive documentation, and is obliged to pay the current owner a non-refundable deposit of $100,000 (U.S.) by July 6, 2005. The company will then be able to acquire 100 per cent of the property in consideration of a final payment of $1.15-million (U.S.) for a total of $1.25-million (U.S.). The acquisition is also subject to regulatory approval. As part of the due diligence, Dynacor will retain an independent qualified person to prepare a technical report pursuant to the terms of National Instrument 43-101 in order to support the acquisition.

Upon satisfactory due diligence results, Dynacor will enter into definitive documentation to acquire the Pasto Bueno mine on the following terms:


Dynacor becomes the operator immediately upon entering into definitive documentation;
a 100-per-cent interest will be earned in the Pasto Bueno mine upon payment to the existing shareholders of $1.15-million (U.S.);
debt assumption of the selling company (Minera Malaga Santolalla S.A.C.) of approximately $700,000 (U.S.); and
payment of a maximum of $1-million (U.S.), in royalty form, payable only when the mine is in production and when the tungsten trioxide price is more than $80 (U.S.) per million thermal units.

Tungsten prices

Tungsten prices and many tungsten statistics are quoted in units of tungsten trioxide (WO3). The short ton unit (STU), used in the United States, is 1 per cent of a short ton (20 pounds) and tungsten trioxide is 79.3 per cent tungsten. Therefore, a short ton unit of WO3 equals 20 pounds of WO3 and contains 7.19 kilograms (15.86 pounds) of tungsten. The metric ton unit ("MTU"), used in most other countries, is 1 per cent of a metric ton (10 kilograms). A metric ton unit of WO3 contains 7.93 kilograms (17.48 pounds) of tungsten.

Market

The Chinese, which control roughly 75 per cent of the world's reserves in the metal, and supply about 85 per cent of world consumption, are currently producing roughly 50 thousand tons per year. The Chinese and to some extent, the Russians, have pushed the price down in the past by flooding the market with cheap tungsten, therefore drastically reducing the global inventory.

Today, the Chinese are focusing on finished product tungsten goods and took measures to curb tungsten exports in order to boost supply inside the country for their own consumption.

In 1986, the USSR was the world's largest consumer but, by 1992, the reformed CIS was exporting tungsten and by 1996 was the world's second-largest supplier. The other principal producing countries today are Austria, Bolivia, Peru and Portugal.

Characteristics

Pure tungsten is steel-gray to tin-white and is a hard metal. Tungsten can be cut with a hacksaw when it is very pure (it is brittle and hard to work when impure) and is otherwise worked by forging, drawing or extruding. This element has the highest melting point (3,422 C or 6,192 F), lowest vapour pressure and the highest tensile strength at temperatures above 1,650 degrees C (3,002 degrees F) of all metals. Its corrosion resistance is excellent and it can only be attacked slightly by most mineral acids. Tungsten metal forms a protective oxide when exposed to air, but can be oxidized at high temperature. When alloyed in small quantities with steel, it greatly increases its hardness.

Uses:

metal cutting tools;
military applications;
high-speed tool steels (drilling bits);
chemicals/catalysts;
wear resistance parts;
superalloys; and
light bulbs, electronics and electrical industry.

Ivan Quiroz, mining engineer and metallurgist, is a member of the Collegio de ingenieros del Peru. He is the qualified person (QP) and is responsible for the technical information contained in this news.