Earthworks at the Drakesland tungsten mine in Devon. Photo: Wolf Minerals

Earthworks at the Drakesland tungsten mine in Devon.
Photo: Wolf Minerals

Anglo Pacific Eyeing Tin & Tungsten Deal

Issue 128, June 2015

London-listed royalty group Anglo Pacific is planning a tungsten deal, eyeing a 1 or 2 per cent royalty over the Drakelands mine.

Owned by Perth-based Wolf Minerals, Drakelands is a tin and tungsten mine in Devon in the South of England. Production is due in the third quarter of this year, but commissioning is “imminent” and due in the next few weeks, according to people connected to the company.

Drakelands is the first metals mine to open in the UK for nearly 50 years. The company employs more environmentalists than geologists and has planted 30,000 trees, plus a bat shelter.

The mine is already subject to three royalties totalling 4 per cent of revenue. Two 1 per cent royalties are held by local landowners, whilst Wolf Minerals sold a 2 per cent royalty for $7m in 2012 to Resource Capital Fund, a Denver-based private equity group.

Anglo Pacific is meanwhile focused on beefing-up on cash flowing assets, since the appointment of hedge fund manager Julian Treger as chief executive 18 months ago. Treger is thought to have a good working relationship with Resource Capital Fund, as two of the largest investors in diamond developer Firestone.

With debt and equity markets largely closed to junior miners, companies able to deliver new mines in the current environment are by definition those with the best economics, according to one analyst bullish on Drakelands.

“It's self-selecting. There's any number of companies running around with unfinanced projects, so if you can raise money for a mine in these markets, you've achieved something really quite special.”

Wolf is perpetually optimistic about the tungsten price, according to critics, and at spot prices revenue could be significantly lower than the company's A$303m ($236m) market cap implies. Off-take deals also mean Wolf will only receive around 80 per cent of the spot tungsten price, eating into the value of any royalties.

Production however could surprise to the upside, if Wolf can persuade local politicians to allow the mine to operate on Sundays. The company was recently given a 6-month trial to extend its operating times from doctor's hours (5 and a half days per week) to prison hours (7 days a week) and is hoping to make the change permanent.

Anglo Pacific closed Wednesday at £0.95 per share, valuing the company at £162m ($249m). Shares currently yield 8.9 per cent.

“If you can raise money for a mine in these markets, you’ve achieved something really quite special.”

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