Tiberon shares light up on Sylvania tungsten deal

With tungsten prices glowing white hot, Tiberon Minerals (TBR-T) has inked Osram Sylvania to an initial 5-year off-take agreement that will see the lighting giant buy at least 44% of the projected tungsten concentrate production from the Nui Phao tungsten-fluorspar project in northern Vietnam.

Under the base case contract, Sylvania will purchase 2,250 tonnes of tungsten concentrate annually for an initial five years; renewal provisions allow the deal to be extended for up to 15 years.

Sylvania also has a one-time option to increase its commitment to include all of Nui Phao’s tungsten production over 15 years. The option must be exercised before the end of the year, and would require a non-refundable multi-million-dollar investment in the project.

The option incorporates a revised pricing formula that becomes more favourable to Tiberon as the price of tungsten rises. The revised pricing applies only to those tonnes in excess of the 2,250 tonnes covered under the base contract.

Both cases are subject to floor-price protection. The base case is designed to cover Sylvania’s internal requirements, while the option would be exercised to cover the needs of Sylvania’s customers.

While the exact pricing scheme remains confidential, the companies say that prices in both cases will be based on the monthly average low European market price per tonne of ammonium paratungstate (APT), as published by London’s Metal Bulletin, less a defined discount.

APT prices have recently soared to record levels owing to reduced supply from China, the world’s largest supplier; on May 13 it was quoted at US$260 per tonne, nearly tripling since the beginning of the year. APT is the most widely traded intermediate tungsten product.

Tiberon CEO Mario Caron says the floor price protection provides the security needed to arrange project financing. “The agreements with Sylvania go a long way to reducing any perceived project risk, and add to the reasons why we believe Tiberon shares are undervalued,” he adds.

The agreements also allow for additional project-level investments by Sylvania and Siemens. Caron says such investments would not result in additional equity dilution for existing Tiberon shareholders. Negotiations have already begun with Siemens; any further investment by Sylvania would require a multi-million-dollar commitment.

In all, the deal with Sylvania, including the option, is expected to generate up to US$1.2 billion in tungsten revenue for Tiberon, based on current APT prices. An interim feasibility study released in January estimated that revenue from all of the project’s commodities would come to about US$1.3 billion.

That feasibility study pegged Nui Phao’s proven and probable reserves at 53.1 million tonnes grading 0.214% tungsten, 8.34% fluorspar, 0.192% copper and 0.097% bismuth, plus 0.214 gram gold per tonne.

Plans call for mining at a rate of 10,000 tonnes per day to annually produce around 4,319 tonnes of tungsten concentrate over 16 years. Total operating costs are pegged at US$7.92 per tonne, cash costs, at US$13 per tonne. The project sports an estimated total price tag of US$211 million, including a US$23.7-million contingency.

Projected recoveries are 61% tungsten, 78% fluorspar, 29% bismuth, 87% copper and 13% gold.

Project startup and commissioning are slated for the second quarter of 2007; deliveries under the off-take agreement would begin in early 2008.

In early March, the Vietnamese government approved the project’s environmental impact assessment; the mining licence is still outstanding, and is required for mine development.

The mining-licence application is currently in the hands of Vietnam’s Ministry of Natural Resources and Environment. Caron says all of the ministry’s queries have be addressed, and that the final review process is going “extremely well,” but he could not confirm when the licence would be granted.

Late last year, Tiberon signed a memorandum of understanding with Belgium’s Sidech to cover all of the project’s bismuth output. Under the proposed deal, the world’s leading bismuth producer would buy 1,000 tonnes of bismuth annually at market prices for the first five years of operation. Tiberon expects to finalize the deal later this year. Sidech would also provide technical assistance with bismuth production. The agreement would generate around US$106 million.

Looking ahead, a final feasibility study, incorporating recently completed pilot-plant metallurgical test work, is slated for completion by the end of June.

Tiberon will now turn its attention to arranging an off-take agreement for the project’s acid-grade fluorspar production; the company has a short list of potential customers.

Fluorspar prices have climbed by about 15% to US$235 per tonne since the start of the year, and many market watchers expect China to reduce or cease fluorspar exports by the end of the decade. China produces just more than half the world’s fluorspar. Nui Phao is expected to produce around 220,000 tonnes of acid-grade fluorspar annually.

Situated 80 km northwest of Hanoi, the Nui Phao property is held by Tiberon, with a 77.5% interest, and two Vietnamese companies owning the rest.

Shares in Tiberon were as much 44, or 17%, higher at a new 52-week high of $3.05 in early trading in Toronto on May 17, the day the deal was announced. The company currently has 40.9 million shares outstanding.