Almonty voices interest in Ormonde

Almonty Industries (TSXV: ALL), a Toronto-headquartered company that describes itself as a specialist in acquiring distressed and underperforming tungsten assets, is turning its sights on Dublin-based Ormonde Mining (LSE: ORM).

In early March, Almonty tabled a non-binding proposal to buy all of Ormonde Mining’s shares, suggesting there is a strategic fit between the two companies’ tungsten assets in Spain.

Ormonde’s fully permitted Barruecopardo project in northwestern Spain, once in full production, is expected to deliver 12% of non-Chinese world supply of tungsten concentrate, but Ormonde has been looking for quite some time at financing options to develop the project.

Ormonde has been working on a debt and equity deal with Los Angeles-based investment manager Oaktree Capital Management, which would give Oaktree a majority stake in the project. (Ormonde would be manager of the project, and receive an ongoing management fee for this service.) The funds would pay for mine development activities this year, with production starting in the second half of 2016.

Almonty in turn argues that it is “ideally positioned to finance the build-out of Barruecopardo, thus mitigating the implied dilution from the proposed transaction with Oaktree.” Almonty’s focus is on past-producing mines, operations that are on care and maintenance, tailings stockpiles, and other situations “where near-term production and positive cash flow can be achieved.”

Almonty calls itself a “highly regarded” and “hands-on turnaround investor-operator” that is expert at “overseeing projects regarded as too complex or difficult for the average, pure ‘financial investor.’”

In 2005, Almonty acquired a poorly managed tungsten mining and processing operation in Panasqueira, Portugal, through its control position in Primary Metals. Almonty’s current president and CEO, Lewis Black, served as chairman and CEO of Primary Metals between 2005 and 2007.

The Almonty team then refurbished the operation, extended the mine life and sold Primary Metals in 2008 to Japanese metals conglomerate Sojitzu Corp., “for a price of roughly twenty times earnings, representing a thirty-fold return on investment” in three years.

In 2011, it acquired the Los Santos tungsten mine in northern Spain, 50 km from Salamanca. Since then, Almonty says it has reduced cash operating costs there by more than 35%, raised recovery rates, improved cash flow from operations, and extended the mine life to more than nine years.

In 2014, it acquired for $18 million the Wolfram Camp tungsten-molybdenum mine 130 km west of Cairns in northern Queensland, Australia. Its goal has been to optimize the mining operation and tungsten concentrate production.

Almonty also owns the Valtreixal tungsten project in northwestern Spain.

Based on a 2012 definitive feasibility study, the open-pit Barruecopardo project in northwestern Spain would produce 1.1 million tonnes of tungsten trioxide (WO3) per year [an average of 227,000 metric tonne units (mtus) of WO3], for nine years.

The feasibility study was based on a JORC-compliant measured and indicated resource of 17.8 million tonnes grading 0.3% WO3, equating to 5.06 million mtus, or 50,600 tonnes of contained WO3, with an additional inferred resource of 9.59 million tonnes grading 0.2% WO3 (2.2 million mtus or 2,200 tonnes of contained WO3).

The resource incorporated drilling to an average depth of 200 metres and is open at depth and along strike. The deposit’s coarse mineralization is amenable to low-cost gravity concentration.

Ormonde signed an off-take agreement last April with the Noble Group for 100% of the tungsten concentrate Barruecopardo will produce during its first five years of production. In November the company received its environmental and mining permit. The brownfields project can be accessed by road and has a source of power.

In addition to Barruecopardo, Ormonde owns 100% of the La Zarza concession in Spain’s Iberian Pyrite Belt. The concession covers a polymetallic massive sulphide body dominated by pyrite but containing significant zones of copper, zinc and gold mineralization. In 2008, the company completed a feasibility study on developing an underground mine recovering copper, lead, zinc, gold and silver into metal concentrates via flotation. The study recommended that to improve the economics, further copper resources should be found. Antofagasta previously held an option on the property, but relinquished it in November 2012.

In Almonty’s announcement on March 10, the company said there was no certainty that it would make a formal offer to Ormonde shareholders, only noting that “a further statement will be made if and when appropriate.”

In a brief research comment, Investec Securities noted that the tungsten market “is facing significant headwinds from the slowdown in China” and pointed out that the tungsten price “shows an uncanny correlation with the iron ore price, albeit that it lags iron ore price moves by between 3 and 6 months. The price for APT has fallen from around US$365/mtu to US$292/mtu, and shows no signs of stabilizing.”