MacTung Shows Strength For NA Tungsten

VANCOUVER — It will cost almost $400 million to build an underground mine at one of the largest undeveloped tungsten deposits in the world — North American Tungsten’s (NTC-V, NATUF-O) Mac- Tung — but a strong tungsten price means the mine would pay back that investment in less than three years.

MacTung is in the east-central Yukon, almost on the border with the Northwest Territories and some 160 km northwest of North American Tungsten’s CanTung mine. The property hosts indicated resources of 33 million tonnes grading 0.88% WO3, as well as 11.8 million inferred tonnes averaging 078% WO3.

A new feasibility study says that resources could support an underground mine for 11.2 years. An operation processing 730,000 tonnes of ore annually would produce 752,000 metric tonne units (MTU) of tungsten trioxide each year (1 MTU contains 7.93 kg tungsten). Operating costs are expected to average $104 per MTU for the first five years.

To build the remote project is expected to cost $356.5 million, which rises to more than $400 million with the $45.6-million contingency fund. While that number is not small, especially in the context of today’s tight markets, the project carries two silver linings. First, it is expected to deliver a pretax internal rate of return of 23.5%, allowing capital payback in just 2.9 years.

It is interesting to note that Mac- Tung also has the potential to support 17 years of open-pit mining if, after the underground resources are depleted, exploitation switches to the near-surface, lower-grade resources. The feasibility study did not consider the benefits of this additional potential mine life.

The second factor supporting development at MacTung is the mineral in question: tungsten. Most of the world’s supply of tungsten — more than 80% — comes from China. But China recently imposed higher export tariffs and strict production quotas for tungsten in an effort to keep more for its own uses.

Annual world tungsten supply is currently just under 9 million MTUs and demand is almost equal. But demand is expected to climb roughly 5% each year, while new supply is limited. The price of tungsten was depressed for some 10 years until starting a significant climb three years ago, which meant there was little incentive to explore for the specialty metal.

North American Tungsten hopes to start construction in the second quarter of 2010 and expects development to take some 27 months. But to build MacTung, the junior needs to find a lender or partner able to carry the significant capital cost.

In fiscal 2008, which concluded at the end of September, North American Tungsten lost $11.7 million. CanTung produced 272,480 MTUs by recovering 73.5% of the tungsten from ore averaging 1.03% WO3, but it was not enough to offset both operating costs at the mine and the costs of completing a feasibility study for MacTung.

The company now carries short-term loan facilities totalling $8.6 million and has just $700,000 in the bank.

On the bright side, in September the company tabled a new resource and reserve estimate for CanTung. The mine still has 655,710 tons of probable reserves grading 1.1% WO3. Before the new estimate, Can- Tung was only expected to operate for another year; it may now have an extended mine life.

On news of the feasibility study, North American Tungsten’s share price gained 3¢ to close at 17.5¢. The company has a 52-week trading range of 10¢-$1.39 and has 127 million shares outstanding.

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