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Ormonde Mining plc: THE INVESTMENT CASE

Ormonde Mining comfortable with progress at Barruecopardo

Tungsten ammonium paratungstate (APT) prices have recently risen to US$210 per tonne
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INVESTMENT OVERVIEW: ORM The Big Picture
“It’s a great time to be building a project,” says Nicol.

Ormonde Mining plc (LON:ORM) said recent legal developments have provided greater clarity on the development of its Barruecopardo tungsten mine in Spain.

Back in February, the company hit a hiccup when a third party appealed against a few of its compulsory land purchase plans.

The objection to the land purchases was subsequently rejected by the relevant authorities but in the view of the project developers, the appeal was vexatious, and the possibility exists of further appeals further down the road.

Ormonde said independent legal advice has now provided clarity on the expected time period to completion of the compulsory acquisition process, given the experience of the recently resolved administrative appeal and the process of any subsequent appeals.

Based on this, the project partners have now adopted an optimised construction schedule for the project, focusing on lands already owned or rented by the company, which will see commissioning in late 2017, as opposed to 2016, as originally hoped.

Happy with progress

Profits in 2015 were €2.07mln (loss €1.63mln) with €557,000 revenues also received in management fees for services provided to Saloro, the company that owns the licence at Barruecopardo.

The Aim-listed junior booked a €3.4 mln gain on the sale of 70% of Saloro, which was part of a US$100mln finance package agreed with Oaktree for the construction of a mine at site in Salamanca.

Mike Donoghue, Ormonde's chairman, said: "The past year [2015] has been a successful one for Ormonde, with the achievement of a $100 million financing package for the Barruecopardo Tungsten Project in what was a very difficult funding market for mining projects”

Saloro is now a 30/70 joint venture between Ormonde and Oaktree having been wholly owned previously.

Straightforward development plan

The plan is to produce around 260,000 metric tonne units of tungsten trioxide (WO3) per year over an initial nine year mine life.

It’s a fairly simple operation that will use experienced and local mine contractors under the day-to-day supervision of the Ormonde management team.

The key to it all, says Steve Nicol, managing director, is that the ore is amenable to simple gravity processing.

“You only need to crush the ore to 5mm,” he says. “You don’t have to pulverise the rock down to powder. That makes for higher recoveries and sets this project apart from every other project.”

That’s important because the tungsten price, in line with most other commodities, has been weaker of late.

But the Barruecopardo product comes in right at the lowest end of the cost curve in tungsten, at US$113.90 per metric tonne unit.

Tungsten ammonium paratungstate (APT) prices have recently risen to US$210 per tonne, which is 29.6% above the low of US$162 seen in January of this year, so there’s still plenty of margin on offer for Ormonde here.

Not so other companies in the space like North American Tungsten, which is currently restructuring under Canada’s Creditors Arrangement Act and laying off staff.

Great time for project

“It’s a great time to be building a project,” says Nicol.

Less competitive projects are coming out of production while a select few new, lower cost entrants like Wolf Minerals (LON:WLFE) and Ormonde bring on new projects that are geared to a lower pricing environment.

But, as always, the situation is a little more nuanced than that.

China, which has historically accounted for the majority of the world’s tungsten supply, has pared back production.

“The supply coming out of China is not going up any more,” says Nicol. “Their mines are becoming higher cost, dropping in grade and getting deeper. Many of their existing mines are in the red.”

That points to likely pressures on supply. Against that, tungsten demand has historically been correlated to global GDP which is forecast to rise by 3.3% next year according to the World Bank.

Growth in the sectors that consume the most tungsten, the automotive and aerospace industries, is expected to grow by around 5%.

It all points to a recovery in the tungsten price that could start to show through just as Ormonde is delivering its first production into the market.

So, with an ongoing exploration programme designed to secure the longer-term future of Barruecopardo already underway, and with the support of joint venture partner Oaktree, the future for Ormonde seems underpinned.

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Ormonde Mining plc Timeline

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February 29 2016
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August 10 2015

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