Tungsten

[Tackler]

Playfair banks on tungsten boom

2006-02-15 14:28 ET - Street Wire

by Will Purcell

Neil Briggs and Don Moore's old pet, Playfair Mining Ltd. chewed through its 15-cent leash last month when investors showed sudden interest in its tungsten plays. The company recently picked up three projects in Yukon and the westernmost part of the Northwest Territories, but Playfair's Grey River property in Newfoundland remains the top play. The tungsten market is now hot, with several decades of artificially low prices apparently over. The buoyant tungsten price is attracting attention from explorers and Playfair has rosy estimates for the economics of its advanced plays. Still, the company will have to provide more answers to sustain the current enthusiasm.

Grey River

Playfair's shares were an eight-cent market snore in the fall of 2004, when the company picked up the Grey River project from South Coast Ventures Inc. The 1,850-hectare property lies about 40 kilometres east of Burgeo, on the southern shore of Newfoundland, or about 150 kilometres southeast of Stephenville.

The little property has a lengthy past, although it slept through much of it. Tungsten first turned up in the area in 1956, prodding Asarco LLC into a 24-year exploration effort. The company drilled, trenched and eventually drove a 1.9-kilometre exploration tunnel into the deposit, collecting a 250-tonne bulk sample from a few raises.

Asarco identified about 470,000 tonnes of wolframite rock with a tungsten oxide content of 0.97 per cent. The old reserve is not up to current 43-101 snuff, but Mr. Moore said they "really were quite confident in what they got." The company plans to prepare a formal resource calculation and there could be room for expansion. Projecting the two main veins to a depth of 250 metres could add another 600,000 tonnes to the tally, but that will likely mean more drilling.

The grade of nearly 1.0 per cent tungsten oxide suggests a gross rock value of about $280 (U.S.) per tonne, although price is one of the uncertainties that Playfair faces. There is no formal metals market for tungsten, and many details remain guarded secrets.

Prices are quoted in metric tonne units, the equivalent of 10 kilograms of an intermediate product in the recovery process, ammonium paratungstate (APT). Based on that, one tonne of rock with a tungsten oxide content of 1.0 per cent would theoretically contain a one metric tonne unit of tungsten.

A potential producer would sell concentrate, not pure tungsten or even APT, and that complicates matters further. Mr. Moore said that a producer might typically expect prices to run about $20 (U.S.) lower per metric tonne unit for concentrate. Playfair arrived at that conclusion by reverse engineering the financial data from producers of tungsten concentrate.

The calculation left a significant margin for error, making the guess a crude one at best, although it is the best answer available for investors. Further, it is unclear if the rough historical approximation is applicable to the current market conditions. "I reserve the right to change my mind," added Mr. Moore.

Speculators also reserve that right. Playfair's shares spent nearly all of 2005 trading between seven cents and 15 cents, but the stock took off on heavy volumes to start 2006. The sudden enthusiasm carried Playfair to a $1.29 early this month, before a change of heart sent the stock back to 82 cents less than a week later. Over 30 million shares traded so far in 2006, worth over $20.6-million. That compares with 18.7 million shares, worth $2.36-million, for all of 2005.

The speculative interest lags a big rally in the tungsten market. The price started 2005 at $60 (U.S.) per metric tonne unit, but surged to a peak of $300 (U.S.). The price cooled off for a time, retreating to $180 (U.S.) per metric tonne unit, before mounting a new charge.

The big variations appear the result of a rapid transformation toward a freer market for tungsten. About 85 per cent of the metal came from China for many years, and the country was content to dump its product at cheap prices. The swelling demand triggered by the rapidly expanding Chinese economy is prompting some big changes. China is imposing greater controls and applying duties to its foreign sales, allowing the price to surge.

Many Canadian explorers are now hopping aboard the tungsten bandwagon, expecting further appreciation in demand for the specialty metal. Current trends suggest the supply imbalance will worsen next year, adding to speculation about further price bumps.

That is encouraging for Playfair, but the lack of a transparent market and the need for continued Chinese controls leaves much uncertainty in price predictions. Tungsten managed a good run back in the 1970s, jumping from $10 (U.S.) per metric tonne in 1963 to a peak of $175 (U.S.) in 1977. A sudden drop in exports from China in 1963 provided the first push in that run, and increased sales by China starting in the late 1970s sparked a steady decline.

The artificially low price undoubtedly was a factor prompting Asarco to abandon the Grey River play in 1970. The property had several owners after that, but few managed any new work, because of the poor economics offered by the depressed market. Price fluctuations remain a worry, but another big downturn is less likely today because of the increased domestic demand in China.

The plan

Mr. Moore said Playfair would probably have to spend about $20-milion to get a mine running, with about 40 per cent of the sum coming from equity sales and the rest from loans.

That would get Playfair a mine capable of handling about 300 to 400 tonnes per day, which would put some pressure on the company to expand its tonnages. Such a mine might go through 125,000 tonnes of material in a year, which would give the mine a lifespan of about four years, based on the historical calculations.

Mr. Moore said the company expected its mining costs would be around $125 per tonne, and if the company's concentrate will fetch double that value, Playfair would have a reasonable cash flow. The company's operating costs would top $15-million, with revenues coming in at over $30-million. Such crude calculations are invariably rosy.

Getting there will be the company's focus this year. Mr. Moore said Playfair planned to spend up to $700,000 on quick drilling and bulk sampling programs that would allow it to produce a resource calculation to 43-101 standards. The company has no firm plans beyond that, but Mr. Moore promised "more, later," after Playfair reviews its new data.

New plays

Playfair will also start work on two intriguing Yukon projects that offer promise of both grade and tonnage, although the projects undoubtedly carry significantly higher costs. The Lened property is about 40 kilometres northwest of Cantung in the Mackenzie Mountains, just east of the Yukon border, while the Risby project is in south-central Yukon, about 50 kilometres west of Ross River.

Playfair has a rough notion of what to expect from both plays, although its numbers are not up to 43-101 standards. In the early 1980s, Hudson Bay Exploration and Development Co. Ltd. drilled up a deposit it thought contained about 2.7 million tonnes of wolframite, with a tungsten oxide content of 0.81 per cent. That works out to a theoretical gross rock value of about $225 (U.S.) per tonne.

The Lened deposit contains 737,000 tonnes of scheelite, at an average grade of 1.14 per cent tungsten oxide, spread across three separate deposits dubbed, Emma, Stephens and Western. There are several other showings on the property, and one produced 1.75 per cent tungsten oxide over 5.4 metres. That makes the two new properties likely drill candidates for this year, along with the third property, Clea, which is just northwest of Lened.

Mr. Moore also waxes optimistically about Playfair's gold projects, as well as its Granite Lake anomaly that he touts as offering hope for a variety of metals. Those plays could also get a closer look this year, if the company can find the cash.

At the end of November, Playfair's coffers were getting bare, with just $125,000 in working capital left. The company arranged to place 3.7 million shares at 21.5 cents, which would bring in another $800,000. Playfair earmarked the money for Grey River and working capital, so it seems likely that it will take advantage of its heady share price to get more cash for its northern projects.

Playfair lost three cents Tuesday, closing at 88 cents on 420,000 shares.