What a difference a year makes.
Back in 2016, Ormonde’s Barruecopardo tungsten project just wasn’t quite cutting it as far as the economics were concerned. The weaker tungsten price was cutting deep scars into Wolf Minerals every day, and Ormonde’s major backers, Oaktree, were wary of having that happen to their own project too.
But although some adjustments were necessary, including a trimming of the fee that Ormonde itself takes for managing Barruecopardo, there was actually no need to rush into production.
The funding, from Oaktree, was already in place and wasn’t going to go anywhere. And because of the nature of the deal Ormonde struck when Oaktree came in a year or two ago now, there was never any danger of an equity or working capital shortfall undermining things.
Ormonde’s chief financial officer Paul Carroll takes up the tale.
“During 2015 the tungsten price saw significant reductions,” he says. That was largely because the global oil rig count fell as oil prices contracted, and the use of tungsten in drillbits was severely curtailed.
But 2016 was also the year when actually, things began to stabilise.
“In 2016 the market was in balance for the first time in five years,” says Carroll. “There had been a cumulative 27,000 tonnes of excess supply over the four year to the end of 2015. But in 2016 the Chinese finally got a grip on their production, which is now down more than 4% on where it was in 2015.”
Those two factors combined have created a new dynamic in the market which Ormonde and Oaktree are now preparing to address.
“There was a time when we were stretching the development timeline,” says Nicol.
“But now a series of factors have meant we’ve been able to greenlight construction. There’s been a definite increase in the tungsten price and a definite increase on the demand side. In general tungsten growth is related to GDP growth and we believe that it’s definitely the right time to build.”
Accordingly, commissioning at Barruecopardo is now planned for the third quarter of 2018, a relatively short build time that’s reflective of the amount of planning that the extended time has allowed for.
“We’ve been doing a lot of preparation work and putting in equipment orders,” says Nicol. Now though, it’s full steam ahead.
“We’ve awarded the dams construction contract, we’re finalising the electrical installation, and almost half the capital cost of the project is committed. The first step is to concentrate on delivering stable production.”
At the moment the plan is to process 1.1 mln tonnes of ore per year to produce 260,000 metric tonne units (mtus) of tungsten trioxide (WO3) per year over a nine year life.
But within that broad outline there is plenty of room for fine-tuning for greater returns. For one thing, the original plan as it was put together before the project was funded and before the gyrations in the tungsten price, paid closer attention to the shift patterns of the workers than is now needed.
Thus, the plan as it stands allows for production across a five day working week only. A straightforward enough board-level decision could move that over to a seven day week and right there a 40% increase in production suddenly appears.
In the immediate term, Ormonde is content to allow a certain amount of spare capacity to remain in the project.
“For initial start-up this spare capacity works as a great risk mitigator. If there are any issues on start up, we can increase throughput by 40%, with no additional capex cost, to assist with any cashflow pressures,” says Carroll.
“For upside, once stable production is achieved we have the option to increase production and cashflows.”
So don’t expect that spare capacity to be left hanging for long.
But that production increase will have knock-on effects of course - if Ormonde is producing more at Barruecopardo annually, then that inevitably means the mine life will shorten too, right?
Wrong.The Oaktree financing included a €3.2 mln exploration budget designed to prove up the viability of underground ore at Barruecopardo.
“We need to focus on the larger value areas,” says Nicol. “There are areas of higher value. So mine life extension works will not be focussed on just increasing the global resource, it’s about working out what’s the most economic way to mine it?”
To date there hasn’t been too much drilling under the main orebody, but what drilling there has been has encountered mineralisation.
And the nature of the Barruecopardo ore, with its coarse mineralisation, has to date made it very amenable to cheap processing. There’s no reason to suppose the underground rock will be any different.
In the immediate term though, the focus will be on the ore nearer the surface, on getting it out and selling it into an improving tungsten market. With the cash coming in, and a growing store of knowledge about the underground ore the company will then be able to turn its attention fully to expansion.