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Reviving Tungsten - Interview With EMC Metals

TIN: OK, so where does Springer fall on the cost curve?

GP: I would say we are in the middle. We are not as low as Woulfe Mining's (TSXV:WOF) Sangdong tungsten project in South Korea, which I think is probably going to be the lowest cost of the restart prospects. That mine is bigger than Springer, and that helps them, but it's a higher capital cost restart too. We forecast that Springer is comparable to the cash cost level of some of the other recent and successful restarts over the last couple of years, and that is the important point.

Actually, I am surprised APT prices have fallen as far as they have, just since August. In my view, prices have overshot the proper number, and I don't think they will stay at these levels for all that long. I think that most existing western tungsten producers are going to be unhappy with today's APT price at US$325/MTU, and it is hard to see today's price encouraging new greenfields tungsten production.

TIN: What do you think would push the tungsten price back up?

GP: The demand for tungsten, and therefore the price of tungsten, is very much connected to world GDP levels and world economic growth. At the moment, we are having hard discussions globally about where growth is going, particularly in Europe, but elsewhere as well. China's growth is slower now than we have grown accustomed to, although it is still good by world standards. US growth was an uninspiring 2 percent for three quarters of 2012, or maybe a bit less if you really get under the numbers. None of that is good for tungsten in terms of pricing. But, again, it is not going to change the dynamic where China manufactures most of the tungsten that we use and have available to us, and China is reducing its tungsten output. Even if we are faced with a demand-challenged world going forward, you expect minerals prices to sit at a level that would justify, or almost justify, a new project. For most primary tungsten producers, and more specifically new tungsten projects, today's tungsten (APT) price doesn't offer the capital return that is expected in our industry. New projects won't rush into this market at today's prices, and that will inevitably support higher future prices for tungsten.

TIN: But we still need tungsten!

GP: Yes, we do. First, the price needs to strengthen to the point where we see existing producers talk about adding capacity. You really want to see a metal's price hold a level that will justify or almost justify one or two new greenfield projects coming on stream. That is the logical price that the market should seek. It should be sufficiently strong to entice a new producer into the marketplace as soon as there is supporting demand. Economists call it the clearing price.

TIN: What would you say is the break-even price, the clearing price as you call it?

GP: It's all a matter of the next highest-cost producer positioning to get on the supply grid. Where that number is precisely, I don't know. For a number of good projects, the right number is probably $400/MTU APT. So the correct answer is: not where we are today. That can all change very quickly if there is stronger-than-anticipated world growth, or even more optimistic dialogue. I do think current tungsten prices are fully discounted for the negatives in the outlook for the metal, in large part because the global economic conversation is also probably exploring worst-case scenarios for growth.

TIN: What challenges does EMC face with getting the Springer tungsten mine to production?

GP: Capital cost to restart is actually relatively low at $30M. It will be a challenge to find that capital, but we are working on that. Right now is a hard time to find financing, and the price of tungsten isn't helping either. This would be a lead pipe cinch if we were doing it two years ago. The challenge is finding investors and partners who understand the longer-term dynamic of this metal, and can see the current price environment as one that will not last. Those investors will like Springer, and they will like tungsten as a metal we can't substitute, and should value from reliable North American sources. The capital markets are pretty demanding, but we think we have the right opportunity in tungsten.

TIN: How would you entice investors to put money into your project, if everybody is having such a hard time?

GP: I think we would say, “we are in the right place on the cost curve.” We are not at the bottom of the cost curve, mostly because we are not big enough to really get there with an underground project, but we do have a realistic picture  of where we sit, and we are competitive. We are also a low cost restart and promising good capital returns. In terms of tungsten mine projects, this is a relatively low-risk project. The mine is pretty much all there, so we don't have capital overrun risks that a new mine would have. We also have great advantage in being 14 months from time to cash. Starting from a standstill with a greenfield deposit, it would take four years or more to get through engineering, permits and to be where we are now. That is a tremendous lead time advantage that comes with restarting an asset, versus developing a new tungsten asset.

TIN: What are the five words you would want investors to associate with your program?

GP: Near-term tungsten production capability.

TIN: Good words. And on that note, I'd like to thank you for taking the time to speak with us.

GP: Thank you.


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