Tungsten watchers know that tungsten (APT) prices have shown considerable volatility over the last 24 months, which makes 2013′s long-term decisions regarding new tungsten projects all the more challenging. Still, tungsten remains a valuable and critical metal, and several juniors are ploughing ahead with their exploration projects. With that in mind, Tungsten Investing News sat down for a chat with EMC Metals' (TSX: EMC) CEO, George Putnam, who talked about EMC's Nevada-based, near-term tungsten project restart. EMC is working on bringing its Springer tungsten mine to production in the short term — perhaps late 2013, but likely Q1 2014. Tungsten Investing News (TIN): Let's kick off with an overview of your project. George Putnam (GP): Our flagship property is the Springer tungsten mine. It's a brownfields project; a restart of an old tungsten asset that was constructed and run briefly in the early 1980s. It's been sitting in the Nevada desert for the last 35 years waiting for a restart. EMC has done a lot of work refurbishing the asset, and we are relatively close to making a commitment to bringing the project back into active production. TIN: Who owned the mine before EMC bought it? GP: The General Electric Company — a rather significant owner. TIN: I did not realize that GE had an interest in mining. GP: Well they did — GE was a significant tungsten consumer and in the 1970s they made a decision to own and develop a primary tungsten asset to supply their businesses. GE owned Hughes Tool, so they needed tungsten carbide for that business. They obviously were the nation's premier light bulb manufacturer for 70 years, after Mr. Edison founded the company, so they also needed tungsten for lighting filaments. They consolidated a portion of a historic Nevada tungsten district in the '70s. Around the same time, GE merged with a mining company called Utah International. As soon as they did that, they handed this property to Utah International, who built them a tungsten mine — totally for their internal purposes. TIN: What caused the mine to close? GP: Falling tungsten prices. Practically every western-world tungsten mine shut down in the 1980s as a result of precipitously falling tungsten prices brought on by Chinese producers. In the 1980s and 1990s, the Chinese virtually owned the primary tungsten business, and they still have a commanding presence in the tungsten business today. China produces over 83 percent of the world's tungsten. In the scheme of things, western-world tungsten production is not as significant as it perhaps it should be, or needs to be. TIN: How about location? Is Springer in a good place? GP: The infrastructure is great. Superb. The Springer mine is located in central Nevada, just 7 miles north of Interstate Highway 80 — the main Interstate highway crossing the United States from San Francisco to Chicago. Mine access is via a paved road cut through the valley and up the side of the hill. You can see it from the freeway — just barely, if you know right where to look. The main east-west Union Pacific Railroad line parallels that freeway, offering easy rail access as well. Our planned output levels are such that we would plan to move tungsten products by truck. The closest town is Winnemucca, which has about 12,000 people, and it is 30 miles to the east. It's nearby a couple of hospitals, a couple of schools and a small, public air strip. It is a great place for mining families to live. It is only 30 to 35 minutes to the mine by car from Winnemucca, and two hours east by car from Reno, Nevada. TIN: And Springer has a five-year mine life, is that correct? GP: That's what the PEA says. But we would not start this operation if we thought it was a five-year mine. It is limited by the fact that we cannot go underground and prove up the old resource. After we pump the mine out, we can then re-establish, we believe, the old historic resource. It is not expensive to dewater the mine, but it is expensive to do all the other things that are required as a part of that step. We will need to post an environmental bond, and modernize (reline) and re-establish the old tailings facility. We will need to rehab the underground areas, ensuring that the mine is safe for people to work in — based on today's standards of safety. It is a couple of million dollars worth of exploration costs, but it is probably $10 million to $12 million to get the mine ready to go underground and drill it. So, as long as you are going to do that, you may as well put the operation right back into production. We believe the historic estimates of the resource. It was operated by a first-class mining group. TIN: When will the Springer tungsten mine be going into production? GP: We believe it will take us 14 months, from the time we start to dewater the mine, until the time we produce tungsten. I have the timelines and engineering estimates that show we can do it. TIN: That is pretty good, very near term. What kind of impact will Springer have on the tungsten market when it comes online? GP: Springer is not a big mine in terms of its production output. It's planned for approximately 150,000 metric ton units (MTUs) a year, which is 1,500 tonnes of contained tungsten in concentrate. That is maybe 2 percent of the world's tungsten demand, and only about 8 percent, maybe 10 percent of the western world's supply. Its actually a pretty typical size for a tungsten operation, although some on the drawing boards are bigger. TIN: Are you looking at the United States as your eventual market? GP: Yes. When Springer restarts at the end of next year, it will be the only tungsten mine in the United States and one of only two in North America — the other one being the Cantung mine, owned and operated by North American Tungsten (TSXV:NTC). Being the only US tungsten mine is a pretty special position. Tungsten is a strategic metal. It is important to the military. It is important in a number of technological respects and it's a hard metal to substitute with other materials because the tungsten element is so unique. Tungsten is a similar story to rare earths in terms of China's dominance and the western world's exposure to Chinese supply of a key strategic metal. TIN: What kind of customers are you looking to attract? Would the military be interested? GP: If you are restarting a tungsten mine today, finding a customer is about the least of your problems. It is easy to sell tungsten; it is not hard to find an interested purchaser of tungsten. TIN: What is the difficulty with tungsten then? GP: The difficulty is that Mother Nature did not make much of it. The grades are such that you usually have to work pretty hard to make a considerable amount of tungsten metal. You have to move a lot of material. Resources are often deep, requiring underground mining techniques for ore production. There are some surface expressions of tungsten, but they are usually very, very low grade. But most of the underground expressions of tungsten generate some fairly high mining costs. So, it takes capital and it takes considerable effort to produce tungsten. The tungsten price has been on a good strengthening trend since 2005, but it has been fairly volatile in the last 12 to 18 months. Underground tungsten mining operations are generally small by the standards of modern mechanized mines as well. It is a challenge when you produce relatively small amounts of a metal product in a capital-intensive operation. Combine that with tungsten's recently volatile price and you need to be low on the cost curve to stay healthy.
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.