It didn’t take long for the panic
to set in, last year, when the Chinese government flexed its muscle by
threatening the world’s Rare Earth Element (REE) supply. With 95% of REE
supplies coming from China, that scare was indeed legitimate. But REEs
aren’t the only elements with which China has the potential to choke
off. On American Elements’ 2011 Top 5 US Endangered Elements List, three
elements (tungsten, indium and neodymium) have over 50% of world supply
coming from Chinese mines.
To
refresh the memory of those who followed the rare earth surge from last
year, and the subsequent piquing of interest in rare earth companies, it
began with Japan. As the summer of 2010 was coming to a close, reports
of an embargo of shipments to Japan for REEs raised concern for
manufacturers who depend upon the elements for production primarily in
the tech industry. Within a month, that embargo spread to North America
and Europe, and concern over Chinese monopolization rose, along with REE
prices, and those of the companies devoted to them. When the embargo
ended, relief came to the sector, while the pace of development outside
of China received only a minor increase. The threat of supply shortages
still lingers, especially with tungsten, indium and neodymium.
The example of tungsten
is not to be ignored, as 85% of global production comes from China,
which has already indicated it might end all exports altogether due to
domestic demand increases. With the highest melting point and greatest
tensile strength of all elements, tungsten’s importance is
unquestionable. Used in all situations that call for high temperature
thresholds or hardness and strength, tungsten is imperative to many
modern living standards that depend upon it. From a US perspective, the
element’s use in the aerospace program, electronics and military
(including in bullets and armor) is critical. To the mining industry as a
whole, tungsten is a savior with many uses within the assembly of
mining equipment itself, including drills in need of durability.
Strangely enough, the United States dismantled domestic production of
tungsten ore in 1994 with the last tungsten mine, the Pine Creek Mine in
Inoyo, California, going down as a historical footnote en route to
Chinese dependence.
Today, tungsten
production remains primarily within China, but awareness of a need to
develop outside of the PRC is becoming clearer. Options in the western
hemisphere are appearing, and may soon be getting the attention they
need to aid this drive for domestic independence. Juniors such as North
American Tungsten [NTC - TSX.V] and Playfair Mining [PLY - TSX.V] may
provide answers that mitigate a possible future supply breakdown. For
North American Tungsten, the title of being the western world’s leader
in tungsten production doesn’t come lightly. Through developing its
Cantung Mine, it provides tungsten concentrate production within the
borders of Canada’s Northwest Territories, which from an international
standpoint is a much more secure mining investment environment to work
within. At a much earlier stage, Playfair Mining is not yet a producer,
but is heavily leveraged to the price of tungsten, which today sits
around $440/MTU (“metric tonne unit”) or over $20/lb. With a goal in
mind to partner with an end user of tungsten metal in order to finance
its Grey River deposit into production, Playfair is well aware of the
potential impact a tungsten shortage would carry.
Due
to its high level of use in the manufacturing sector, a significant
number of Fortune 500 companies are dependant upon tungsten’s
availability. General Electric and its Tungsten Products Division, along
with others like Kennametal and ATI Firth Sterling are among those that
would most likely benefit from securing a long term tungsten supply,
and are among potential targets should Playfair seek a high-worth
partner to put its nearest term tungsten property into production. The
company has 4 high-grade deposits with two located in the Yukon, one in
the Northwest Territories and another on the southern coast of
Newfoundland. Each of the properties was acquired strategically during a
period of massively deflated tungsten prices, prior to this latest
surge over the $440/MTU mark. This increase represents a 70% rise from
the recent low prices that graced Playfair’s entry period. While the
commodity’s price has risen, the company’s stock has yet to follow suit.
While
the current price of the stock seems to have languished, the team is
making strides to be better prepared for when the bigger end-users in
need of tungsten come knocking. The board includes experienced
individuals who have taken deals into production before, as well as
Director James Robertson who took the last big tungsten company outside
of China to successful acquisition. In both combined 43-101 compliant
and non-compliant resource categories, Playfair’s tungsten properties
contain more than an estimated 5.5 million MTUs of WO3. It’s to be
expected, though, that since Playfair is an exploration company, these
resources have room for expansion. As economic uncertainty lingers in
all global markets, crucial and endangered elements such as REEs,
tungsten, indium and neodymium
will be within the watchful eye of western manufacturers in need of
these ingredients for their operations. Whether another anticipated
panic is inflicted by possible impending embargo actions by China
doesn’t change the dependence we have on endangered elements. And like
last year’s REE crisis, a price surge on those companies were set to
move prior complications is entirely a likely scenario. G. Joel
ChuryProspectingJournal.com
–
Disclaimer: The author does not currently hold any shares of any of the
companies mentioned in the article. However, some members of Cordova
Media Inc., which owns the ProspectingJournal.com, may or may not have
interests in one or more of the companies mentioned at the time of
publication. Staff members from the Prospecting Journal reserve the
right to acquire interests in any of the companies mentioned after 36
hours have elapsed upon initial publication of this article. Playfair
Mining is a sponsor of ProspectingJournal.com.
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