We have previously mentioned the stock market candidate Pilar Gold several times here. The Brazilian gold producer has set itself the goal of reaching 100,000 ounces of gold annually by 2023. Over the past two years, Pilar has aggressively pursued the consolidation of mining assets and exploration licenses in Brazil. The centerpiece is the producing Pilar gold mine itself, which was purchased from Equinox. A few months ago, Pilar CEO Jeremy Gray surprised his shareholders by announcing that the company had also acquired the former Bodo tungsten mine at a bargain price.
The decision did not receive unanimous approval from investors, who initially perceived it as a dilution of the gold strategy. In a noteworthy letter to shareholders, which we reproduce in English below, Gray not only defends the decision but also announces plans to spin off the Bodo Mine and potentially list it separately on the stock exchange. It is remarkable how much weight this seemingly peripheral project could gain in such a short time. The plans for Pilar Gold’s own IPO remain unchanged. Pilar Gold is expected to go public in the third quarter of 2022.
CEO Jeremy Gray: Letter to Shareholders
“Now that investors are investing in hard assets to protect against inflation, the hardest of all metals seems poised for a major price increase. I wouldn’t be surprised if tungsten continued its strong rise from $35,900 to $80,000 per ton over the next 12 months. We are confident in our Bodó tungsten mine in Brazil and plan to reopen it in Q4. Since Bodó receives little attention at Pilar Gold, we are working on plans to spin off the project to Pilar Gold shareholders to maximize their returns and also accelerate the capital raising process for restarting the mine.
The market hasn’t always been this strong. A good way to gauge how high a commodity price could rise is to look back at how bad it was in the past. Tungsten points to 3 important sentiment indicators:
The first is the taste test. The mere mention of the metal must leave a bitter aftertaste for some investors who lost money in previous downturns. Since we acquired Bodó in January of this year, we regularly hear: ‘Be careful with tungsten’. This is due to the market crashes of 1992 and 2015, when China dumped excess tungsten stocks on the market.
The second reason is the lack of access to financing, which leads to endless delays in new projects. A good example is Almonty Industries’ (market capitalization 200 million CA$, TSX AII) incredible Sangdong tungsten deposit in South Korea. Sangdong should be producing today, but access to debt financing has taken longer than expected, with the lender demanding the fulfillment of an incredible 110 preconditions. To be honest, I would have given up after 10 conditions, but credit to the company for persevering for two years and now being ready to draw down the $75 million facility.
The third and final key element is the rarity factor in finding new world-class tungsten deposits. Given that tungsten exploration ceased after the 1992 price crash, it’s fair to say that nothing new has been found recently.
Due to difficulties in accessing financing, hardly any new deposits will be developed in the next 12 months, and this at a time when demand from the semiconductor, electronics, military, oil, and mining industries is strong. The strategic tungsten stockpiles that were once abundant in the US, Russia, and China also appear to be at critically low levels, and the fact that 87% of global supply comes from China and Russia is causing great concern among Western buyers.
If I were a fund manager, I would buy a basket of pure tungsten producers like Almonty Industries, Tungsten West, and Group 6 Metals, which I call the big 3.
Tungsten West (market capitalization £123 million, ticker TUN.L) is the most advanced with its already constructed Hemerdon operation and has raised £45 million in capital for mill work to improve recovery and grade. Hemerdon supplied Britain with tungsten during World War II and has the potential to produce up to 3,800 tonnes of tungsten per year or just over 4.8% of new market supply.
King Island Scheelite, now Group 6 Metals (market capitalization A$130 million, ticker G6M.AX), owns the Dolphin project, a world-class tungsten deposit in Tasmania. As a child, my father and I used to drive past the mine on the way to the farm when it employed 900 workers. The mine has been dormant since 1992, and Group 6 appears to be fully funded to begin construction next month, with capital costs of A$112 million. Once up and running, it has the potential to produce 3,100 tonnes per year or 3.9% new supply.
Almonty Industries, as mentioned earlier, has the largest project that could one day produce at least 4,000 tonnes of tungsten or 5.1% new supply. It was last operational in 1992 and was South Korea’s largest exporter in the 1960s.
A common challenge now facing all three projects is rampant industry inflation. Just as they finally have access to money, their budgets may need to be scrutinized more closely. Time will tell how this affects their start-up times and ability to ramp up production. The longer their mines take to get up to speed, the higher the tungsten price will rise. Even if everything goes perfectly to plan, in reality, it takes at least 12 months for a large mine to reach its full potential as mill fine-tuning occurs and mining faces the usual challenges. While the industry waits for the ‘Big 3’, the market needs a new Tungsten West-sized mine every year to keep up with demand.
This is why we are confident in our high-grade Bodó tungsten mine. It last produced just two years ago and has a well-functioning mill and infrastructure. Our plan is to spin off Bodó from Pilar Gold and give the company access to fresh capital so it can grow faster on its own. Pilar Gold will retain a stake in the group, but we want to distribute shares to our existing Pilar Gold shareholders to thank them for their incredible support over the past three years. We would appreciate any feedback on how best to spin off the company.
Click the link below to view the updated presentation following the team’s visit this week.
Pilar Gold – Bodó Tungsten Presentation – April 2022
Our Pilar Gold team, led by Richard Crew and Israel Oliveira, visited our Bodó tungsten mine this week. Bodó is a nice little town, and our guys were thrilled that many residents approached them asking when the mine would reopen. Our main focus is on restarting Bodó in the fourth quarter of this year, ahead of the big three mines, to capitalize on rising prices. We anticipate our total costs will be around $15,000 per tonne, compared to the current price of $35,900. If we’re right that prices will rise towards $80,000, then the payback on the $4 million restart capital costs could be less than 6 months.
Our initial goal is to slowly ramp up production to 1,000 tonnes per year by the end of 2023. If I’m right about $80,000 tungsten, this is equivalent to 42,000 ounces of gold. There is no shortage of high-grade ore, and we want to use Bodó Tungsten as a vehicle to consolidate the Bodó district and bring back important jobs.
Mining rule number 1 states: ‘Always start a mine when prices are rising, not when they’re falling,’ and we hope that the dynamics of this rare metal will provide us with a long period of high prices to increase value for Pilar Gold and Bodó Tungsten shareholders. There’s no reason why Bodó, with some consolidation in the district, access to capital, and hard work, shouldn’t be able to achieve an annual production of 2,000 tons of tungsten by the end of 2024. This would make us the small Brazilian brother of the big 3 at a fraction of their investment costs.
As part of our tungsten journey, we are very proud to announce that Michael Dornhofer from ISBP (Independent Supply Business Partner) will be joining the Pilar Gold / Bodó Tungsten team as a consultant to be our head of tungsten marketing. Michael has an incredibly extensive knowledge of the industry and is working with us to find the best tungsten offtake agreement to support Bodó during the recommissioning phase. It’s a pleasure to work with Michael, and he has visited Bodó several times in the past. Another key hire will be Bodó’s lead geologist, whom we will announce shortly.
Below you will find a webinar by Pilar Gold, recently hosted by Red Cloud, explaining why we are so excited about the high-grade gold drilling at Sertão. We believe this mine will be something special and will once again become famous.
