Post by
74volfram on Jul 17, 2015 2:39pm
Old Sangdong, share price and valuations
Why can't the mine just operate like Old Sangdong did for 40 years until 1990?
- During the period 1952 to 1987, annual production of tungsten concentrate varied between 1,000 and 3,300 t and total production was 75,000 t. The average was 2,200 t/yr from all levels. Old Sangdong was the largest mine at the time, but at those levels would not be in the biggest 10 today.
- What makes Sangdong unique is the amount of reserve that is locked in the mountain, and the extension of the mineralization underground. The Koreans went after the easy to get material in the most expedient way. The historical operations employed a lot of people in the area (1000s) which was good, but produced a high level of environmental damage. It was allowed due to the post-war situation and necessary to the growth of the nation, but left an ugly scar in in what is otherwise a very healthy mountain area. BTW where is 5ilverlining? he has worked at the new mine plan.
- Gangwon province is the most primitive and beautiful area of Korea and the government is trying to develop it while preserving its nature and history, including remote temples sky slopes, golf courses, casinos, natural parks and the tungsten mine, which is part of the country heritage.
- Environmentally, the last thing Koreans wanted to do was to resume the old mining practices. that is why they welcomed the Australian/Canadian company.
- Economically, the old mine would not be competitive today. The present mine plan, working with only 3 levels out of 20 and with a little more than 100 people will produce 4000 t/yr (30% more than the old mine at its peak).
- These numbers are not easy to achieve. They require a lot of expertise and a solid track record. The expertise is hard to find. Most new tungsten mines are open pit. Just drill a hole and keep blasting around in circles. At some point Wesson even suggested to do open pit at Sangdong and I don't think it went down well with the locals. It really is a mistake to underestimate how difficult is to mine tungsten in an effective and environmentally responsible way.
- Almonty and Black Heat are the only Western miners I know that have hard rock underground experience of the type that would work at Sangdong. They both come from Primary Metals and the Panasqueira tungsten mine in Portugal, which is a historical mountain mine they rehabilitated and brought to profitable production and sold for a large gain about 6 years ago.
Gastown writes: "Thank goodness for Mr. Black. Hopefully he can get over to Korea and explain to the local miners just what it is they need to do to get this mine back in production".
Perhaps we do not mean it the same way, but these are also my thoughts.
Gaius writes: "The ONE correlation I've seen since the announcement . . . Almonty stock is going up, ours is going down, which means the street consensus is that Almonty is stealing Sangdong". Almonty stock is going up because there are no sellers (3000 shares to $1.25). Woulfe has more shareholders that are looking at any uptick to get out, and given the past performance it is hard to blame them. Some would even prefer losing all of 1M shares rather than merging with the one producing miner which actually has a record of "bootstrapping" old mines into profitable operation. The Woulfe stock would also go up if shareholders here had more conviction. Actually I do think what keeps a lid on the SP here is some cash strapped financial outfit like Resinco that periodically offloads Woulfe shares to stay solvent.
Kilgor writes: "Volfram, you keep pushing $10/share post merger (and in the long run)....... I don't see it, so show us your numbers..."
I did post these numbers a while back:
Expected tungsten production (tons/year):
2015: Almonty: 1100 (Los Santos) + 600 (Wolfram Camp); Woulfe: 0; TOTAL (A+W) = 1700
2016: Almonty: 1100 (Los Santos) + 900 (Wolfram Camp); Woulfe: 0; TOTAL= 2000
2017: Almonty: 1100 (Los Santos) + 1200 (Wolfram Camp) + 700 (Valtreixal); Woulfe: 2000; TOTAL= 4000
2018: Almonty: 1100 (Los Santos) + 1200 (Wolfram Camp) + 1500 (Valtreixal); Woulfe: 4200; TOTAL= 8000
Projected earnings of successful A+W (will depend on the price of tungsten)
Assuming the combined A+W can achieve overall production costs of USD 170 /mtu on all mines (this is the current cost at Los Santos), gross earnings will be USD 50 /mtu at current tungsten price (220 /mtu) (1 ton = 100 mtu)
At current tungsten price USD 220/mtu, total (A+W) earnings would be 10M (USD) in 2016, 20M in 2017, 40M in 2018
At USD 270/mtu (January 2015 tungsten price) earnings would be 20M (USD) in 2016, 40M in 2017, 40M in 2018
At USD 370/mtu (June 2014 tungsten price) earnings would be 40M (USD) in 2016, 80M in 2017, 160M in 2018
Valuation of successful A+W (will depend strongly on the price of tungsten).
Using a 6x multiplier on earnings (P/E=6), In 2018 the combined company (A+W) valuation would be: USD 240M (APT 220), 480M (APT 270), 960M (APT 370).
The analysis is very simplistic but gives a quick idea of the potential. The P/E is conservative for a major miner (which the A+W would be if this works out). Unless there ar emajor mistakes in the numbers, the valuation of A+W at APT 370 would be about $10 per share.