Profitable turnarounds at Almonty

Almonty Industries is a global mining company focused on tungsten mining and exploration. The company is listed on the Toronto Stock Exchange and its current portfolio includes operations in Spain, Portugal, and South Korea. Almonty specializes in acquiring distressed and underperforming tungsten operations and assets. The company’s operational experience and unrivaled expertise in the tungsten market help revitalize these operations.

The company’s acquisitions have been fast and very profitable turnarounds. Almonty continues to actively pursue other growth opportunities via acquisitions where it can apply its tungsten expertise to create additional value for all stakeholders.

Tungsten is an irreplaceable component in the production of much modern technology. For example, tungsten is an additive in the production of specialty alloys; filament wire for lighting (2%); and specialty uses for mobile phone handsets, military, ballistics (defense equipment) automotive parts, aerospace components, drilling, boring and cutting equipment, logging equipment, electrical and electronics appliances, chemical applications, and many other end-uses.

Recently, I had the opportunity to chat with Lewis Black (LB), CEO and president of Almonty Industries. Black talked about tungsten and the recent developments in the global markets and how it affects the company’s projects and investments.

CMJ: As a conversation starter, can you please talk to us briefly about the history of Almonty Industries and how you became the CEO and president of the company?

LB: Almonty Industries was created about 12 years ago by myself, which is how I became CEO. I put about $9 million into the company when we made our first acquisition, which was the Los Santos mine in Spain. I was the founding partner back in 2011.

Previously, we had been under a ticker of PMI where we had had the Panca mine. We had bought that mine, turned it around, and sold it for 21 times earnings. So, after that event, we rebranded a few years later with Almonty

CMJ: In your opinion, how are political risks and defense implications affecting the industry now?

LB: Both these points have really taken front and center in the last four years. Everyone was very aware of certain jurisdictions and their dominance of certain commodities for the last 30 years.

We saw this in 2008 when most of the supply contracts out of China were canceled in the national interest. At that point, everyone in the economic meltdown and the thought was: we are going to diversify, and of course, the EU (European Union) pivoted towards Russia to diversify, which has not worked out quite as they planned. In the last four years, we have seen this geopolitical risk elevate dramatically. Also, one thing we have learned during the last three years of the pandemic is that governments have much more capacity to act than we all realized. Whether you are a corporation or a consumer, it does not really matter what jurisdiction you are in, because if a national emergency or a strategic reason is declared, the government can do whatever it wants. And there is really nothing you can do about it.

Things are no different with commodities. So, there has been a focus on tungsten which is extensively used in defense. One thing that has been highlighted in the first traditional land war that we have seen in a generation, which is in Ukraine, is that currently the West has an exceedingly small capacity for munitions production compared to what it had 30 years ago.

And in Ukraine, they are consuming every day more munitions than we could produce daily. So, you can see why it is problematic to have 90% of the world’s tungsten coming from China and Russia. Even if you can get the tungsten, which is exceedingly difficult right now, 90% of it must come from the very people that you have to prepare yourself to defend against.

It is an extraordinary predicament that we found ourselves in.

CMJ: Is the situation any different because we have a war going on? Did we not realize that problem before even the war?

LB: I think we must look at the concept of the democratic system. The democratic system is reliant on a popularity contest every few years. So, the focus is on the things that make you popular. During the Cold War, of course, defense was front and center, but since then, we have become a much more progressive society, and now we can solve our issues over croissants and coffee. The harsh reality is when one country plants 167,000 troops on the border of a sovereign nation that borders into Europe, and you call their bluff, they roll right across you.

When the war started, Germany said they have two days’ worth of munitions inventory, and they are sending tanks to Ukraine but no munitions. Also, the U.S. very generously, promised to give 31 Abrahams tanks to Ukraine, but they cannot ship them because they need to replace the existing armor with tungsten and webbing armor, which they cannot procure right now because there is no tungsten. Unfortunately, people knew but no one really cared.

The issue is that no politician was going to get elected in the last 30 years saying I am stockpiling munitions. And we have obviously seen what happens when someone calls our bluff.

CMJ: The global supply chain is facing many increasing challenges. Can you talk to us about that? What created the current situation in addition to the war?

LB: In the 1980s, there were 100 tungsten mines outside of China around the world. By the mid-nineties, only two were left, and this was not unique to tungsten.

What happened to several commodities is that pre-WTO membership of China, they arrived at the market, and bought market share by making certain commodities available at prices that we were in disbelief at. As a result, no one could compete.

We never really understood this market share dominance. And once you got a foot in the door, supplying raw materials would become supplying of downstream materials, and you would keep expanding your dominance. It was just business, and we dropped the ball. How we resolve it now is the $24,000 question.

What we saw during COVID was not just any typical global event. We saw enormous ripples of interference with a smooth-running global operation.

For example, shipping has been an absolute disaster for the last three years. It has been hugely expensive, enormously unreliable, and chaotic. We have sanctions on Russia but not really. Sanctions only work if everyone signs up. So, Russian tungsten still finds its way to the market. It just does not go through the EU anymore. It goes through China.

Globalization conceptually is a fantastic and worthy ambition, but we do not really have a global supply chain. What we have is a supply chain that is dominated by certain jurisdictions. The fact that it crosses the world to get to you does not make it a global supply chain. A global supply chain implies that if you are not happy buying from place A, then you have options to buy in place B, C, D, and E; that is a global supply chain. We do not have that. Currently, you can buy it in place A, and that is it. And so, shipping has obviously been an issue.

We are talking about commodities that are dominated by two countries, Russia and China. We have no idea what they will do to defend that market share. Will they cut you off? Will they restrict supply? Will they crash pricing? We do not know how they will defend it. And that is the great unknown for governments. So, we need diversification.

Tungsten is on the list of 31 minerals currently considers to be “critical” by the Canadian government. It is a chemical element with the symbol W and atomic number 74. Tungsten is a rare metal found naturally compounded with other elements. It was identified as a new element in 1781 and first isolated as a metal in 1783.

Fast facts about tungsten

• > Tungsten is the heaviest engineering material with a density of 19.25 g/cm3.
• > It has the highest melting point of all metals at 3,410°C with a boiling point of 5,700°C.
• > It has the lowest vapour pressure of all metals.
• > It has the highest modulus of elasticity of the metals (E = 400 GPa).
• > It is the hardest pure metal.
• > Excellent high-temperature strength characteristics.
• > It has the highest tensile strength at temperatures above 1,650°C.
• > It has a low thermal expansion co-efficient (4.4 x 10-6 m/m/C) like that of borosilicate glass, and therefore makes it useful for glass to metal seals.
• > It does not oxidize in air and needs no protection from oxidation at elevated temperatures.
• > Its corrosion resistance is excellent, and it is not attacked by nitric, hydrofluoric, or sulphuric acid solutions.
• > Environmentally friendly; does not break down or decompose.

CMJ: Outside of China and Russia, how can countries in conflict with those two countries secure their supply of tungsten?

LB: High level solutions include government offtake, loans, and subsidies. We know that countries would like to have a choice but want certain conditions with that choice. They want to know that the mines are ESG compliant and that they operate in transparency.

I know from first-hand experience that building and operating in democracies is not for the fainthearted. It is a journey and the countries where the journey to opening a mine is much smoother are less transparent democracies, and the level of ESG compliance is really starting to diminish. Now, they have no choice but to obtain tungsten that has a more spurious ESG background because there is no other option.

So, what can we do about supply chains? I have always felt the most palatable solution is for governments to issue offtakes with ESG requirements contained within those offtakes. Basically, they put all those problems on the producer. If you can have a project that complies with the ESG, here is a government offtake, and what that government offtake does for you is that it gives you access to the state capital because you can get state loans from local banks.

An offtake is an instrument that you can trade against, but you must comply with these levels of ESG. It is similar, I suppose, to the fact that if you want to be able to sell a diesel vehicle in Canada, you have to comply to the emissions requirements. That would be my mid-to-long-term solution.

In the 1950s and 1960s, tungsten was more valuable than gold. So, every man and his dog were out there prospecting. Some of the projects survived, and some did not. The projects from the 1980s are in areas of natural beauty. For instance, there is one in northern California amongst the redwoods. No one is ever going to be allowed to mine there, and you should not.

There are other projects that are up in the Arctic Circle in Canada. How can you compete in that environment against a Chinese producer? You cannot. So, I think it is a difficult situation for tungsten. There are mines in Africa and Mongolia, but these are artisanal mines that will require vast amounts of investment to become significant producers.

And then back to the ESG story, can you really comply? Jurisdictions in southern Europe have not issued any permits in years. In Canada, First Nations legislation is so complicated and confusing it has almost brought all new mines to a standstill. If you look at the building activity in Canada for mines, it is significantly diminished, and it is mainly because of the delays in the permitting and the delays because of the First Nations legislation.

You must have an impact benefit agreement (IBA) with the Indigenous or First Nations, and those negotiations take an exceedingly long time. Also, you must be involved in several environmental studies. Not every First Nation is business savvy. There is the Tahltan Nation, for example in B.C., which is a very business-savvy First Nation. They have their own business counsel, and it is really a pleasure for mining companies to work with them, but that is not the case everywhere else.

We can look at it as a glass half full or a glass half empty as to why the government did it [delays], but ultimately, they did, and they are not the only ones. In Portugal for example, they have not issued a mining permit in six years. It is the same in Spain. Even in South Korea where we are building the Sangdong mine, we are truly fortunate because that town was built for this mine. So, everyone in that town has a history with that mine, but they do not issue permits anywhere else. So, all governments say we must diversify, but we just do not want to do it here!

CMJ: Almonty is close to reopening the Almonty South Korea tungsten project (the Sangdong mine), which hosts one of the world’s largest tungsten deposits and can potentially produce a huge percentage of the world’s tungsten supply; can you please talk to us about this project and how Almonty got to this stage?

LB: It could potentially secure 10% to 15% of the world supply. If we open it up further and further, we will account for about 30% of non-Chinese supply, which is more than adequate in phase one. We financed it through KFW IPEX-Bank, with a traditional project finance loan, and that is unusual for a company of our size to be able to attract that type of financing. The project is a very robust tier one project. The independent engineers for the bank did a 2.5-year forensic due diligence, and they came to two conclusions: One, we are not as stupid as we look because all we know is tungsten, we do not know anything else, and two, they were extremely impressed with our operational approach. We converted this mine from an early 20th-century concept to an Equator Principles concept that is commercially viable in the 21st Century. And secondly, there is nothing else like this project within tungsten. The low grade is higher than most other projects. And the high grade is close to the highest on the planet. It is of extraordinary scale. We know of 20% of the deposit and there are more than 90 years of reserves right there.

Within 150 metres of our existing infrastructure, we have one of southeast Asia’s largest high-grade molybdenum deposits, and South Korea is the fourth largest importer of molybdenum. We were truly fortunate to be able to acquire Sangdong. It is the holy grail in our sector.

We were also fortunate through hard work to get a project loan from KFW IPEX-Bank because an environment of expensive money is normally the start of the death spiral of most junior mines.

The project is financed very affordably with possibly the best lender on the planet. Certainly, the most credible and the most prestigious. We started work later than people would have liked.

Currently, we are looking, as we have disclosed, to build a downstream plant in South Korea. It is the start of the first and it will be the only vertical transparent smelter in the world. The only one because the other vertical smelters are in Vietnam and China. So, it is really going to have an enormous impact on the tungsten market.

Ultimately, everyone just must bear with us, because the best cake is always the one that takes a little longer to bake, but it tastes great when you get it out of the oven. This is a work of art; this is going to be in the top 5% of ESG compliant projects. It will be carbon neutral because all the power comes from nuclear power stations. It is automated on the surface, and it will be fully automated underground within three years of commissioning.

As KFW said, “it is in one of the most advanced mines in the world because you have an enormous digital infrastructure and career to capitalize on.” So, we are lucky to be able to be the operators of such a unique once in a lifetime opportunity.

CMJ: Finally, what sets Almonty Industries apart from other mining companies, in your opinion, and how does the future look like to you?

LB: We have a mine in Portugal that has been going on for 126 years. The bulk of the team are five-generation tungsten people. We know how to get tungsten out of the ground, and we know how to get some copper out of by-products.

Ultimately, tungsten is our thing, and it is a difficult metal to process. If you have not done it before, you should not do it because it will break you, as we have seen in many examples of people who have opened tungsten mines and then closed [them].

Within tungsten, we are different because we are considered the best operational team in the world. Even the Chinese have engaged us in the past to help them with environmental compliance. We have a long history within tungsten in all forms. And I think that distinguishes us from other mining companies. Other mining companies may have an engineer or a geologist who is a specialist in many fields, many minerals but a master of none. We are not specialists in many fields; we are only a master of one field, which is tungsten, and that has meant that we have been able to compete with China. It is why we were able to bring someone like KFW to finance the world’s biggest tungsten mine. Ultimately, we are the last man standing.

We have always looked to refine what we do and always been very aware that just because we are a Western supplier does not mean that we are entitled to a different price than our Chinese colleagues. We must be competitive. Otherwise, we have no right to survive. CMJ