BGS Risk List: Why Tungsten Is On It

By Michelle Smith — Exclusive to Tungsten Investing News

BGS Risk List: Why Tungsten Is On ItThe British Geological Survey (BGS) compiled a risk list that outlined the relative risk of certain elements and element groups in 2011. It ranked them according to a risk index, outlined in the following infographic, ranging from one (very low risk) to ten (very high risk). The highest ranking awarded was an 8.5, and tungsten was one of only four elements to receive it.

Based on this list, tungsten is a metal facing high supply risks. Not only does Britain realize the economic importance of tungsten, but also, in the EU, it is one of 14 minerals and metals classified as critical, meaning it has significant economic importance to the member nations.

The BGS describes tungsten as a key hard metal used in almost all cutting tools. It is an important metal with no substitutes, and a key component in steel manufacturing, construction, oil drilling, and mining industries. Tungsten is also used in the fabrication of wires and filaments used in electrical, heating, and lighting applications.

Tungsten’s ranking on the risk list is the result of an assessment of the metal using four equally-weighted criteria, which are discussed below.

Scarcity

The BGS used crustal abundance to determine tungsten’s scarcity. Based on a 2003 report, tungsten is classified as low risk based on a crustal abundance of one parts per million.

Production concentration

According to the BGS, if an element’s production is mainly concentrated in just a few countries, supply risk may be increased. For this criterion, the BGS World Mineral Production (2005 to 2009) report was used to determine the top three producing countries. When their combined contribution accounted for more than 75 percent of global production, an element was ranked as high risk.

Between the period of 2005 and 2009, world tungsten production ranged from 57,000 tons to 62,300 tons. China is the source of 83 percent of the world’s tungsten, and produced between 41,000 and 51,200 tons each year between 2005 and 2009.

The second largest tungsten producer was Russia. That nation’s contribution to annual supply ranged between 2,400 and 3,200 tons. Austria came in third and is credited with 887 to 1,280 tons during those years.

That the world must largely rely on China for tungsten could raise concerns for a number of reasons, the first of which is that the Chinese government restricts supply using export quotas, essentially leaving most other nations to compete for rations. In 2012, the Chinese government set the quota at 15,400 tons, a 300 ton reduction from last year.

Having China as the dominant producer could be problematic in other ways. For instance, it provides domestic consumers with a competitive advantage. Consumers in China are often privy to cheaper prices than their international competitors. This has led to concerns that domestic users are able to produce and bring to market tungsten products that are cheaper than those made elsewhere in the world.

Reserve base distribution

With reserve base distribution, the BGS aimed to assess risk by determining where an element could be produced in the future, although this is not to say that there are currently any plans or projects underway to do so.

Again, an element was given the highest-risk ranking if more than 75 percent of global production came from within three countries, and again tungsten earned this ranking.

According to US Geological Survey data, China  not only has the largest resources, but also the largest reserves; of the 6.3 million ton global reserve base, 4.2 million tons are in China. The second largest reserve base of 490,000 tons is in Canada, and Russia ranks third with 420,000 tons.

Governance

The BGS used World Bank data to assess political stability in the top-producing nations. For this purpose, political stability is considered the perception of likelihood that a nation’s government will be destabilized or overthrown in an unconstitutional or violent manner.

China received a ranking of 29.7, Russia 21.7, and Austria 88.7. This translates into China and Russia being considered medium-risk countries and Austria being considered a low-risk nation.

The underlying reasons for the rankings were not provided, but they were based on more than the mere existence of a functioning democracy or a long history of one. Governments face other risks to their political stability such as war, famine, and terrorism.

Opportunities

A supply disruption for tungsten is most likely to be caused by “human factors such as geopolitics (‘haves’ seeking to influence ‘have nots’) or resource nationalism (state control of production).”

China is the leading producer of 28 of the 52 items on the risk list, including tungsten, and the government’s interference in the market is already clear. Also of importance is that China has claimed that it has a growing domestic demand for the metal, increasing the risk of future tightening of export quotas.

Tungsten is geographically widespread with significant resources in a number of countries. Given concerns about the limited supply outside of China and the economic consequences of this situation, there is a real need for a diversity of sources for this metal. Opportunities are rife for those who are willing to venture into this space; developing projects in other nations, especially those with stable governments and mining-friendly atmospheres, would provide an immediate marketing point.

Tungsten junior miners outside of China 

Junior miners are rising to the challenge of supplying the market with tungsten outside of China, here is a selection:

Colt Resources (TSXV:GTP,OTCQX:COLTF), North American Tungsten (TSXV:NTC), Woulfe Mining (TSXV:WOF,OTCQX:WFEMF), Largo Resources (TSXV:LGO), Ormonde Mining (AIM:ORM, IEX:ORM), Wolf Minerals (ASX:WLF,AIM:WLE), Playfair Mining (TSXV:PLY), Geodex Minerals (TSXV:GXM,FWB:G2W), Malaga Inc. (TSX:MLG), Kings Island Scheelite (ASX:KIS), Carbine Tungsten Limited (ASX:CNQ, ASX:III), Hazelwood Resources (ASX:HAZ), Vital Metals (ASX:VML), Galway Resources (CSX:GWY) and Almonty Industries (TSXV:AII).

 

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.

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