Coffee with Samso Episode 1
The tungsten market has been something of a non-happening space of late. The market at one stage looked like it was going to go for a run but somehow ran out of steam. In 2018, tungsten prices were reported to be around US340 MTU. However, the price seems to have taken a backward step to the US$300 mark. The prevalent uncertainty is causing a lot of market participants to be uncommitted to projects.
US-China Trade War
The recent rumblings with the US-China trade war seem to have raised some issues that would give the tungsten market the feeling of some light at the end of the tunnel. Take the Arafura Resources Limited (ASX: ARU) who before China making what I called, “The Statement” was closing its doors. The day after that statement, the company was in full flight, and everything was going to happen. Although that has not happened to the tungsten industry, I do feel that the flow down effect will catch on. The gold price is now creating so much positivity that gold producing companies are laughing and celebrating.
Environment and Mining in China
Mining in China has always been a luxury as the demands of the government translated into the work of the people. In the 1990s when a friend of mine was working in China, he told me that the way it works in China was the government would say that they need an amount of ore and the company would go and mine it. There was no need to be economical. As the country has progressed into a first world economy, this kind of business would no longer be viable.
The onset of a big push to clean the country up with environmental constraints has added to the cost of mining. The ageing mines in China are now being scrutinised and are being pushed to perform in a cleaner environment. We all know that the mines in China have been operating for a long time, and the cost of changing your mining and processing style to be cleaner is going to be interesting. I do think that a lot of the ageing mines are going to be struggling to make the grade in Xi Jinping’s new and cleaner China.
The new environmental requirements are not just the demand of the party but the new more educated and more prosperous people of China is also asking for the changes. It is this level of demand the fuels my belief that the cost of mining will impact on future output. First world economies have been putting up with the extra cost of doing business with environmental constraints, and the new member of this exclusive club will have to learn to do it. If it meant that you could no longer be the number one player anymore, you would have to live with it.
China is a wealthy nation now and wants better living standards. The citizens demand a better life and the Government intends to create a harmonious place for its citizen. Changes will happen, and I think the world will slowly see the grip loosening in China.
Growth outside China
As the focus has been on the rise and rise of China and the demise of the US economy, what is not a consistent focus is the recent recovery of the US economy and the growth of India. Infrastructure in the US has been neglected for decades and is in great need for upgrades. This has been a brewing investment pathway that will lead to a resource resurgence that will give tungsten a breath of fresh air.
When you look at India, which is now the most populous nation on the planet, I think there is going to be a surge for resources soon. One will argue that the investments will not be anywhere near the levels spent in China, and that is a true statement. What I believe is that the new age growth is going to benefit the strategic metals. You are not going to make a lead rocket nor an aluminium rocket. However, metals such as tungsten are going to find its place and this new growth may give tungsten its place in the modern world.
For Australian investments, many investors have not caught onto the fact that Australian projects make money in AUD and the falling AUD is an excellent thing. Take the gold price, it is currently at USD$ 1430, but when companies sell the gold, it’s over AUD$ 2,000. This is all happening while the AISC (“all-in sustaining costs”) has not changed. Australian tungsten miners will reap the same rewards when that differential is more apparent in the tungsten price.
Coffee with Samso completes the conversation discussing the components that will make the tungsten market something to watch over the next 24 months. Several factors would change the fortune of the tungsten sector. When you look at it in detail, one will have to agree that is is going to be a buoyant industry. The companies that have a good project will be the one that will give shareholders value.
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