Oversupply continues to dampen revenues for Canada Tungsten

High volumes of exports from Chinese tungsten producers are continuing to depress tungsten prices, keeping Canada Tungsten’s (TSE) earnings on a downward spiral. The company suffered a net loss of $2 million (11 cents per share) for the quarter ended March 31, compared with a $1-million (6 cents per share) loss for the same quarter last year.

Although the company was able to meet, and in some cases exceed, production targets at its Fort Madison plant in Iowa, Nevada gold mine and Swamp Creek placer gold operation in the Yukon, this success was “overshadowed by poor markets for tungsten,” said President Wayne Lenton at the annual meeting of shareholders.

But management is optimistic about the future. According to the annual report, “most analysts estimate that China’s current level of exports to the west, together with its internal consumption and exports to the centrally planned economies including the USSR, must exceed its current mine production.” In this case, markets should recover once China’s inventories are depleted.

Asked whether Canada Tungsten would be able to compete with other producers in the Western world if the Chinese threat was eliminated, Lenton was hopeful. “Their costs are slightly better than ours, but not a whole lot — they are in a survival mode.” In fact, Lenton told shareholders that Chartered Consolidated has put its Portuguese mine, one of the two operating tungsten mines in the Western world, up for sale. Since 1986, 60 tungsten mines, including Canada Tungsten’s mine in the Northwest Territories, have had to close in response to stiff competition from the Chinese.

Shares of Canada Tungsten jumped 34 cents to close over the $3 mark in the last week of April. The company says it knows of no reason for the recent share price fluctuations.

Tungsten, a hard, dense element, is used in tungsten carbides, mill products, tool steels, alloys and in chemicals for catalysts. End-usages range from cutting parts for machine tools to lamp filaments. Depending on market conditions, production at the Northwest Territories mine could be resumed within four months. Meanwhile, in an attempt to offset losses from tungsten operations, the company plans to diversify within the mining sector with a “primary focus on base metals,” said Lenton. Considerable assets and membership in the Amax (NYSE) group of companies will aid in this diversification process, he added.