Much-overlooked opportunity: Investing in Tungsten?

YMHK's picture
Rank: Monkey | 31

Hi all, I'm quite new to the forum (as an actual member) but after seeing so many good posts I just want to contribute something to this community as well.

There will be two parts to this topic; this thread mainly focuses on the introduction to the tungsten market in general and my opinion on investing in tungsten. In part 2 I will take a more technical approach which will include a brief analysis on the major tungsten miners and my [humble] opinions on the market timing aspect.

Tungsten
Also known as Wolfram (W), tungsten is the second strongest material (after diamond) known to man, with a highest melting point among all metals.

About 60% of world tungsten supply is usually consumed for the production of hard metals, which are often considered the vital and irreplaceable elements in high temperature applications such as light bulb filaments, essential drilling parts for oil and gas exploration etc. (and sometimes your watch).

China has more than 85% of world's supply, and recently (2010) imposed a limit on its tungsten supply to the world due to increasing costs in production and domestic demands, and decreasing reserves; since 2009 there has been a widening trend in worldwide market deficit.

Tungsten APT* price as of Aug 10th 2012:
EURO 402.5 /mtu** ? CAD 489.73 /mtu ? USD 493.93 /mtu
*APT: ammonium paratungstate, the most common form tungsten is sold in
**1 mtu (metric ton unit) = 10 kg

Although tungsten APT price has doubled since China tightened its supply, the demand for the metal has yet to see weakening signs. In addition, many junior companies have emerged in the past few years and are now targeting new tungsten excavation opportunities around the globe.

It is difficult for average investors to directly invest in tungsten ore or APT, mainly due to the fact that tungsten is a strategic metal and it doesn't trade on the London Metal Exchange (and we lack the capital of course). However, generally there are a couple ways that allow you to have some exposure to the tungsten market and its price movement.

Most obviously investing in tungsten miners will be an easy way to harness the potential growth; below is a list of [relatively] large tungsten miners in North America, in descending order (mkt cap in CAD):

Largo Resources Ltd (TSXV: LGO) $197.75MM
Woulfe Mining Corp. (TSXV: WOF) $68.02MM
North American Tungsten (TSXV: NTC) $50.98MM
Colt Resources Inc. (TSXV: GTP) $49.88MM
Almonty Industries Inc. (TSXV: ALL) $34.56MM
Happy Creek Minerals (TSXV: HPY) $11.55MM
EMC Metals Corp (TSX: EMC) $10.44MM
Playfair Mining Ltd (TSXV: PLY) $3.7MM

Most of the miners are junior companies listed on the Canadian TSX Venture Exchange, which means they are certainly subjected to strong price volatility and are relatively illiquid. (I will try to come up with some comps figures later if I have time)

For now, I'm mainly focusing on two companies, Wolfe Mining Corp, Green Technology Solutions Inc. (not on list). I picked these two companies not because they are the most profitable in terms of the potential absolute return, but of their unique properties that no other candidates can offer. In my opinion, WOF has the most favorable risk/reward ratio and compared to other tungsten miners your ROI can have the highest correlation to the actual tungsten price growth; and GTSO is just interesting enough to catch my attention (explained later).

Wolfe Mining Corp. (TSXV: WOF)

Formerly known as Oriental Minerals Inc, Wolfe Mining Corp is natural resource company currently involved in a gold-silver mining project and Sangdong tungsten mining project in South Korea.

The tungsten mining project is set to re-open in 2013 and is then expected to be the world's biggest tungsten ore producer. This February, Berkshire Hathaway acquired a 25% stake in the Sangdong mine and invested $15.75 million in its APT production plant.

Pros: It can be considered a relatively less risky investment as it is backed by giant institution Berkshire Hathaway and is once the leading tungsten miner in the entire industry (and will be again). Its common shares are also considered some of the [relatively] most heavily traded ones among the tungsten miners, which may offset some of the liquidity risks involved in the investment.
Cons: Shares are highly volatile

Green Technology Solutions Inc. (OTCQB: GTSO)

Green Technology Solutions Inc., aka GTSO Resources, is a junior company with a vision to cultivate innovative green technologies and bring them into major markets.

The company is focusing on two projects right now: an urban-mining operation in the U.S. that is expected to experience major growth, and a joint venture with Diamond V Associates Inc. in tungsten mining. The former, urban-mining, is an operation in acquiring valuable materials in electronic waste such as gold and lithium, and recycle them for profit.

Pros: GTSO involves in projects that will potentially open itself for exponential growth (even compared to other tungsten miners) in the next few years
Cons: Being an emerging company and currently trading over-the-counter, GTSO Resources has yet to be able to provide a solid track record in financial performance (like $0 revenue)

Other than equity securities, there are managed products that can also get you some exposure to the tungsten market, one of which is the Market Vectors Rare Earth/ Strategic Metals ETF (REMX). It includes some junior tungsten minors but don't expect it to reflect minor tungsten ore/ APT price change. The ETF is currently trading at $12.99 and since inception NAV has come down 16.88% and share price down 16.62%. In my opinion part of the fall could be attributed to the price movements in its rare-earth components, and should hardly offset the potential gains.

In part 2 I will try to offer a more in depth analysis on the growth potential as well as the downside risks of the mentioned companies and ETF.

Tl;dr: invest in tungsten, but do your own research first

I am new to posting at this forum so please feel free to comment on anything you like; I'm open to all kinds of criticism (that being said, trolls please keep it to yourself)

Comments (11)

Aug 13, 2012

Tungsten: great investment or the greatest investment?

Aug 13, 2012

liked the read
+1

Aug 13, 2012

A worthy read, my biggest issue with commodities, particularly the metals is that the "supply" figures are always the "economically available supply" figures. Once prices rise, all sorts of untapped veins become mined, and then there's a price slump, quite a risk for an asset that generates no income apart from at sale.

I agree with your logic, but dont know enough about it to justify taking a position in it, so won't be investing.

Aug 13, 2012
trazer985:

A worthy read, my biggest issue with commodities, particularly the metals is that the "supply" figures are always the "economically available supply" figures. Once prices rise, all sorts of untapped veins become mined, and then there's a price slump, quite a risk for an asset that generates no income apart from at sale.

I agree with your logic, but dont know enough about it to justify taking a position in it, so won't be investing.

Absolutely agree with your point here. I was aware of this problem (or at least similar) during research and my solution was not to invest directly in tungsten but in its miners and exposed funds. It is my fault for not making that clear and not stating the investment time horizon (which can make a huge difference in this case)

Thanks for pointing that out; I'm now planning to write a part 2 that includes a more in depth exploration on this matter as well as the fundamental aspects of the investment, then a part 3 for a more technical approach

Aug 13, 2012

Tungsten (PT:W) needs a rebranding, its name is gross to say

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Aug 18, 2012

plenty of tungsten in fort knox already.

Aug 18, 2012

so should i open a lightbulb recycling plant?

If the glove don't fit, you must acquit!

Aug 18, 2012
WalMartShopper:

so should i open a lightbulb recycling plant?

I don't think you can open one in the US. The EPA would up your ass within a week.
(China though)

Aug 21, 2012

amazing read! haha doing my own research on Tungsten now

Sep 11, 2012

Good to know that tungsten companies are still going strong! Now I can invest in tungsten with a little bit of comfort.

Sep 11, 2012
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