Why Warren Buffett Likes Tungsten
In 2011, restrictions on the availability of rare earth elements brought the term "critical minerals" into the headlines. The industrial world's powers responded by filing a complaint with the World Trade Organization (WTO) against China's export restrictions and duties on rare earth elements.
Did you know that tungsten was also on their hit list? And, did you know that tungsten was ranked ahead of rare earth elements on the British Geological Survey (BGS) annual mineral "risk list" in 2011? Warren Buffett evidently did which may explain his recent interest in tungsten.
Ranking fourth on the BGS's risk list is tungsten. Tungsten is the hardest and strongest metal on the planet. It is over three times harder than chromium, cobalt and titanium and over five times harder than nickel, iron and platinum. Tungsten alloys well with other metals and it has the highest melting temperature of all metals and displays high resistance to corrosion.
The main use for tungsten is in the manufacture of cemented carbides or hard-metals, which make wear-resistant materials used in metal working, mining, petroleum and the construction industries. The steel sector is a primary consumer of tungsten for use in stainless and full alloy steels, and superalloys. It is also used in light bulbs and has various military, aviation and power generation applications.
China is the world’s largest producer of tungsten - supplying roughly 85% of the world's demand. China also controls approximately 67% of world reserves with Russia and Canada ranking second and third. The global supply of tungsten metal is tight with just a few operating mines located outside of China. Very few new mines have opened in the past ten years. Recycling has filled the production gap increasing from 5% of the world's supply to 35% over the past decade.
Over the next five years some think the global supply of tungsten will worsen. In part because secondary production from recycling is nearing maximum output. Furthermore, tungsten is not readily co-produced with other metals thus limiting its potential production.
A 2012 Market Research tungsten report notes, "Restricted by the limited new exploited resources and the policies concerning total exploration amount control and export quotas, China’s output of tungsten ores will witness little scope for growth in the coming years and the global tungsten market will present tight supply."
The decision by the Chinese Government to introduce restrictions on the production and export of tungsten in order to conserve resources and meet increasing internal demand may have a major impact on the industry. Since 2010, the price of tungsten APT has moved from $200 to $400 per MTU.
Supply constraints could also be paired against increasing demand. International metals and minerals research firm Roskill says the outlook for the tungsten market is positive as they expect tungsten demand to increase at almost 6% per year to 2016, driven on by strong growth in China.
North American Tungsten (Stock Profile - TSXV:NTC & OTC:NATUF) is a leading junior tungsten producer. The company currently produces 4% of the world's supply - half of which is exported to China. North American Tungsten has been producing tungsten from its Cantung mine in Canada's Northwest Territories since 2001. The company has navigated two mine shutdowns and restarts and, during the most recently shutdown in 2010, upgraded the mine with a $25 million capital program. In addition to the Cantung mine, North American Tungsten owns the Mactung property which boasts one of the largest high-grade tungsten deposits in the world.
A relatively new tungsten player is Hunter Dickinson's Northcliff Resources (TSX:NCF). In October 2010, Northcliff entered an agreement with Geodex Minerals (Stock Profile - TSXV:GXM) to acquired a 70% interest in the tungsten/molybdenum Sisson Project in New Brunswick, subject to investing up to $17 million in project development expenditures. The company has now completed the requirement and secured its 70% interest. Further to the initial agreement, Northcliff entered into a second agreement in May 2012 to acquire the remaining 30% interest from Geodex. According to the company, the Sisson Project has the potential to become an economically feasible low-grade open pit mine. The Feasibility Study is expected to be completed by the third quarter of this year.
Let's not forget about the Oracle of Omaha, Warren Buffett. IMC Group, a subsidiary of Buffett's Berkshire Hathaway (NYSE: BRK-A) that holds a diverse portfolio of metalworking companies, recently entered into a deal to invest $35 million in Woulfe Mining (Stock Profile - TSXV:WOF & OTC:WFEMF) for a 25% interest in their South Korean tungsten operations. In 2009, Woulfe acquired the past producing Sangdong mine in South Korea which has historically been one of the world's top producing tungsten mines.
For a list of publicly traded mining companies with an interest in tungsten & tin - CLICK HERE.
Disclosure: at publication date Kirk Exner, Managing Editor of MiningFeeds, owns shares of North American Tungsten.