Thor Mining (LSE:THR) has risen from 1.6p to 2.2p this month, boosted largely by the news that it has taken on a corporate adviser to help it secure financing with interested firms at its Molyhil tungsten project in Australia. The news follows a year of strong progress at Molyhil that has seen Thor release greatly enhanced financials for the site, while also boosting its upside through a nearby acquisition and work on an underground operation.

Here, CEO Mick Billing discusses recent progress at Molyhil and the nearby Bonya tenements – where the company recently released a maiden copper resource estimate. He then goes on to provides further clarity around the progress of financing talks ahead of mine construction and, ultimately, production. 

Molyhil progress

Thor first acquired Molyhil, which sits 200km northeast of Alice Springs in the Northern Territory of Australia, in 2004 as an advanced exploration opportunity. After carrying out significant work over the years on the project – such as drilling and metallurgical testing – it is now substantially permitted and ready for construction. Indeed, as it stands, the site contains a probable reserve of 3.5MMts at 0.29pc tungsten (10,200ts) and 0.12pc molybdenum (4,300ts).

This year has seen Thor intensify its efforts to secure financing and offtake agreements for Molyhil, which it calls one of the highest grade open-pit tungsten projects globally. The business took a significant step forward in January with an upgraded statement of the site’s open pit ore reserve extending its mine life by a year to seven years with first production planned for 2020.

To generate further interest among potential financiers, Thor went on to use these new figures to inform an upgraded definitive feasibility study (DFS) at Molyhil. After some delay, the results were released in August, prompting a considerable increase in Thor’s share price over several days of trading.

The new DFS boasted many improvements over its previous iteration, including an NPV(5) of A$101m, an internal rate of return of 59pc, an EBITDA of A$239m and a payback period of around 18 months. Meanwhile, production costs at the mine are set to reach just $90/mtu as project finance requirements come in at US$43m, with an additional US$8m of equipment costs. Billing says it is vital to remember molybdenum credits are set to bring in substantial revenues at Molyhil alongside tungsten. He went on to claim this will considerably reducing capex costs from their already-low base:

‘What is extremely attractive about Molyhil is the low capex requirements and healthy margins- production costs of $90/mtu compare to a current price for concentrate of $245/mtu. The sticking point is that tungsten can be a difficult metal to market and sell. Purchasers are wary of entering into fixed-price contracts because it cannot be hedged easily. However, we can mitigate any potential impact here with our considerable molybdenum credits. These cut capex costs to $50/mtu and are set to bring in around US$10m a year over Molyhil’s life of mine. After about four years, molybdenum alone will have paid for the project, leaving tungsten to cover operating costs and profit.’

Upside sources

Although an improvement, the updated DFS does not factor Molyhil’s considerable upside potential. Firstly, Thor believes it will be able to operate an underground mining operation at the site, with its mineral resource estimate extending below the level of the open cut ore reserve by up to 200m. Indeed, January’s open pit ore reserve even identified a portion of this are as potentially economic for underground mining. The area will require additional drilling before moving into the reserve category, however the firm expects it to extend Molyhil’s operational life considerably.

Secondly, in March, Thor announced that it had paid $550,000 in shares to acquire a significant stake in the polymetallic Bonya tenements just 30km east of Molyhil. More specifically, it bought a 40pc position in a licence called EL29701 and complete ownership of another called EL29599. EL29701 hosts 13 outcropping tungsten deposits, a copper deposit, and a vanadium/titanium deposit, while EL29599 is considered prospective for copper mineralisation.

With no drilling on the tungsten deposits since their discovery in the 1970s, Thor plans to launch its first drilling programme at Bonya imminently. It will test several of the prospects with numerous shallow reverse circulation drill holes at an estimated cost of A$300,000. Although originally planned for this quarter, Thor is still awaiting clearance to begin the programme and work is now likely to launch in 2019. Regardless, Billing is optimistic that the drilling can extend Molyhil’s life of mine:

‘I suspect that any drill rig needed to do this work is not going to turn up until February after we have received clearance. Provided some of these known prospects mature, along with others which we expect to find and develop, it is more than likely that Molyhil’s production life and throughput volume should increase substantially.’ 

In the meantime, Thor has been assessing the potential of Bonya’s copper deposit, releasing its maiden resource estimate for the area earlier this month. The estimate, which sent Thor’s shares 18pc higher, gives the deposit an inferred resource of 230,000 tonnes grading 2pc copper (4,600ts). Crucially, Thor believes that it has the potential to add six months of profitable mine life to Molyhil at no additional expense, given that the mine’s processing plant is amenable to the treatment of copper ores. In a statement, Billing said he believed it would be the first of a ‘series of satellite tungsten and copper deposits within economic trucking distance of Molyhil’, before adding:

‘This small but high-grade copper resource will provide valuable supplementary mill feed to the Company's nearby Molyhil processing plant. Our primary incentive to acquire an interest in the Bonya exploration licence was, and still remains, the tungsten deposits in the licence area, therefore this "free" copper resource could be considered a bonus’

Thor is also continuing to carry out an external review of the vanadium deposits on the project licence, where Billing tells us attractive market conditions have warranted the further exploration of magnetic anomalies:

‘There is almost certainly not enough historical information on the vanadium deposits with which to come up with a resource estimate. However, there appears to be some magnetic anomalies that are yet to be drilled and some drilling results with reasonable assays for vanadium with a little titanium. Rising prices have made these metals considerably more attractive.’

Market tailwinds

Billing tells us favourable dynamics in the tungsten and molybdenum are also supporting Thor’s efforts to lock in financing and offtake agreements at Molyhil. 

Tungsten, used in the manufacture of steels, alloys, and mill products, is widely recognised as the hardest known metal and is considered a strategic commodity in the US, China, and the EU. Due its unique properties, such as its high melting point and tensile strength, the metal is critical in industries such as industrials, oil & gas, mining, and agriculture. With this in mind, strong demand and weak supply helped prices to double between early 2017 and June 2018, and many analysts expect this dynamic to continue. Some have even forecast prices of as much as $400/mtu shortly.

Molybdenum, meanwhile, is a key component in many high-quality stainless steels, where it can be substituted with nickel when the latter’s prices become elevated. Due to much of the world’s global molybdenum supply arising as a co-product of large porphyry copper mining operations, supply can be inelastic. As such, like tungsten, prices have soared 50pc in the last 12 months thanks to strong demand. Many expect supply constraints to remain in place for several years.

Thanks to these tailwinds, in combination with the upgraded DFS figures, this month saw Thor announce that it has been in active talks with a number of potential offtake partners in the market for both metals. It added that it has had approaches from and held discussions with numerous parties potentially interested in financing and other partnering initiatives at Molyhil. Billing tells us Thor has already signed a non-binding MoU in respect of tungsten concentrate with a ‘major international downstream’ player, while several molybdenum players are looking at fixed term contracts:

‘We have had numerous people in both markets who are pretty keen on getting hold of some concentrate right now. The last hurdles are those associated with securing the best deal we can on the off-take and financing agreements. There are people in the Molybdenum business who are looking at entering a fixed price contract for the project. I would have thought that two- or three-year contracts will be achievable, and that will give us some certainty around revenues.’

To support the completion of these potential offtake agreements and project financing opportunities on the best terms possible, Thor recently hired Argent Partners as a corporate advisor. Although he does not expect a deal to be in place before the end of 2018, Billing tells us the money to take Molyhil forward is likely to come from more than one source:

‘We will be publishing progress in the New Year and although I cannot confirm how financing for Molyhil will take place I can provide some example of how these things can work. There have been a couple of outfits who are talking about a joint venture where they would fund a fair chunk of the capex in return for a slice of the profits moving forward. There are also a couple of outfits in the offtake space who want the tungsten and molybdenum concentrates quickly. It is not unheard of for parties in this situation to advance some money to secure an agreement. I suspect a chunk of the funding will come from these parties.

In the meantime, with a £800,000 cash balance and no debt as at 30 September 2018, Billing says Thor remains fully-funded until Q2 or Q3 next year. Alongside this, the business has enjoyed continuing support from strategic investor Metal Tiger (LSE:MTR), which now owns a 10.3pc stake in the company after investing £300,000 at 2.5p a share in January. What’s more, Thor’s directors hold a considerable 6.7pc of its issued share capital.

Conclusion

Thanks to its high-quality resource and attractive margins, Molyhil is a string to Thor’s bow that sits firmly alongside the company’s other interests – the US Pilot Mountain project and the Australian Kapunda copper project.

The site is currently at a particularly exciting stage, with plenty of news flow on the horizon driven by financing and offtake agreements and a looming 12-month construction period. Over a long-term horizon, the initiation of metal production and the development of upside potential – both at Bonya and through an underground operation – provide further opportunities for value. With Molyhil also enjoying the support of robust fundamentals in both the tungsten and molybdenum markets, the mine could generate some serious value for Thor and its shareholders over coming years.

Author: Daniel Flynn

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