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Ormonde Mining: Barruecopardo has chance to capitalise on massive opportunity

The sell-off in the small-cap sector has been indiscriminate – so the market’s success stories have been battered alongside the market’s basket cases. A prime example of this irrational behaviour in action is Ormonde Mining, which has achieved everything it set out to accomplish a year ago, yet has seen its value tumble by 14 per cent in 2011.


Scan the mining sector and you’ll notice there are a number of juniors that have made material progress in the last year.

You will also realise that rather than being rewarded for their efforts these companies have been penalised.

The sell-off in the small-cap sector has been indiscriminate – so the market’s success stories have been battered alongside the market’s basket cases.

A prime example of this irrational behaviour in action is Ormonde Mining, which has achieved everything it set out to accomplish a year ago, yet has seen its value fall by 14 per cent in 2011.

Ormonde, which is on target to become a Tungsten producer by the second quarter of 2013, is sailing into a perfect storm so far as demand for the metal and prices are concerned.

There is expected to be a market deficit outside China of 14,500 tonnes of Tungsten when the company’s Barruecopardo mine, in Spain, comes online.

Meanwhile, the price of tungsten trioxide has shot up to around US$450 per metric tonne unit (the standard 10 kilogramme measure) from US$200 at the start of last year.

The market is dominated by China, which is responsible for 86 per cent of primary production and supplies 72 per cent of the world’s demand outside the People’s Republic.

And more of China’s production of this strategic metal, which is used in specialist steels, electronics and aerospace, is being retained to meet domestic demand.

The high capital costs of new projects, combined with the long lead time to production means this shortfall will take a long to time fill.

So Barruecopardo has the opportunity to capitalise on what is a massive opportunity.

It has a large resource - the equivalent of 7.12 million metric tonne units (MTU) and a nine year open pit life to mine 2.1 mtus before going underground.

Meanwhile, annual production will be significant and in the order of 12 per cent of the non-Chinese output.

Yet unlike many of the other tungsten projects around the world, this is a very simple, clean, efficient project, resulting in it having an incredibly low capital cost in the order of €40 million.

In the past year the total resource base has risen by 45 per cent to 7.12 million mtus of tungsten trioxide following an infill drilling campaign with resources in the higher confidence category of measured and indicated rising by 68 per cent.

A year ago almost to the day chief executive Kerr Anderson set out a very ambitious programme of work that would bring the Spanish deposit to the brink of production.

“We delivered what we said we would deliver,” Anderson told Proactive Investors.

“It is a significantly bigger resource than we had before and we will be producing 60 per cent  more tungsten annually than we previously planned, but our capital costs have stayed within previous estimates.”

This has lead to a significant increase to forecast annual net operating cash flows, which now come in around €29M at a tungsten APT price of $350 per mtu. At current prices of around $450 permtu cash flows would be considerably higher. That’s not bad for a company with a current market cap of £28 million.

Before the company goes into production it must raise the capital required for what is a fairly straightforward mining and production operation.

Key to this will be the publication of the bankable feasibility document, which will allow it advance discussions with the banks for funds.

However Anderson reveals the group is already in preliminary discussions with potential lenders, having issued an interim feasibility study in October.

There are other funding options that could be complementary or an alternative to traditional project finance.

The Ormonde boss’ remit is to minimise the dilution when shareholders are asked to stand their end of the capital costs for Barruecopardo.

Anderson will inevitably look for an off-take partner, and there may even be a possibility of forming a strategic alliance to develop what is a very valuable asset.

“The objective is to have the financing in place by the end of the first quarter.” he said

“If it slips into into the second quarter  I won’t be too worried.  The capital costs are very low for a mining project of its size and cash flows are extremely strong, even at tungsten prices well below the current levels. It’s a very fundable project.”

The final mine plan and the environmental applications are to be submitted to the relevant authorities very soon.

“Final documentation will go in shortly and then we will be dialogue with the administration,” he added.

“What we have been doing is ensuring that everything they need and want they have got. This means they don’t have to come back to us for more information.”

Away from the company’s flagship asset, Ormonde owns gold and copper licences. But because its resources have been focused on bringing its flagship tungsten mine to production, it has farmed in companies with relevant expertise willing to shoulder the exploration costs.

In Antofagasta it has a blue chip collaboration partner with deep pockets to fund the La Zarza copper project in Andalucia.

Last week Ormonde Mining and Antofagasta agreed a 3,000 metre drilling programme on targets identifiedfollowing the completion and interpretation of an airborne VTEM geophysical survey and a detailed gravity study covering the entire permit area..

Antofagasta can earn a 51 per cent interest in the La Zarza joint venture by spending US$7 million on exploration programmes and subsequent evaluation activities.

Following the completion of the earn-in, the Chile-focused copper giant has the right to increase its interest to 75 per cent by completing a feasibility study.

It also recently agreed an expanded exploration campaign on the Zamora gold project in western Spain with partner Aurum Mining that will include around 2,000 metres of diamond drilling.

However the value generating asset is Barruecopardo. The last word on the project goes to John Meyer, the veteran mining analyst at the company’s broker Fairfax.

“Ormonde Mining continues to progress towards the approval, planning and financing of its new tungsten mine in Spain,” he said.  

“Progress looks like a duck paddling up stream, ie the duck looks steady but there is much work going on underneath the surface and the project should advance quickly once it is through the heavy water.”

Quick facts: Ormonde Mining plc

Price: 0.65 GBX

Market: AIM
Market Cap: £3.07 m

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