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Vital Metals: JOGMEC Starts Watershed Tungsten Tender Process

Vital Metals (ASX:VML) has confirmed that strategic partner JOGMEC has formally commenced a tender process to secure a long-term partner for the Watershed Tungsten Project in North Queensland.

Proactive Investors reported yesterday that JOGMEC (the Japan Oil, Gas and Metals National Corporation) had announced on its website that it was accepting bids for its stake.

Deadline for bids is 18th August while the deadline for selection of the partner is 24th September.

Under its investment mandate, JOGMEC, which holds a 30% interest in the Watershed Project, has undertaken to arrange the transfer of its interest to a Japanese company which will participate in and help fund the project's development.

This key milestone takes the project closer to financing and development by crystallising the long-term ownership structure of the project.

Vital completed the Watershed Feasibility Study in September last year, confirming the technical and financial viability of the project and paving the way for financing and development of the Watershed Project.

Since then, while awaiting finalisation of the joint venture arrangements, Vital has updated the Feasibility Study to reflect favourable movements in the Australian cost environment and exchange rates, resulting in significant enhancements to project economics.

Mark Strizek, managing director, commented:

"This now establishes a clear and firm timeline for advancing the project, with final bids due under the tender process next month and a final deadline for selection of the long-term partner of 24 September.

"JOGMEC has already facilitated meetings with all of the Japanese companies that are active in the tungsten space.

"All are companies with strong balance sheets and a corporate ethos that would fit well with Vital and our plans to become a top global tungsten producer through the development of this high-quality project.

"We are pleased to see JOGMEC driving ahead with the transfer of their 30% interest and we look forward to the completion of their process. This should allow us to complete formal joint venture agreements and begin financing discussions with a view to securing a debt and equity funding package that could see construction commencing in 2016.

"The countdown is now well and truly on for the financing and development of Watershed, which has the potential to be a company-maker generating very attractive returns for our shareholders and joint venture partners alike."

Watershed Tungsten Project

The Watershed Tungsten Project is a fully permitted mid-sized project with an Ore Reserves of 21.3 million tonnes at 0.15% WO3.

It also has potential for resource growth, with mineralisation remaining open along strike and at depth, meaning an extension to the current mine life is also likely.

A recent review of the Definitive Feasibility Study has concluded that savings in the pre-production capital costs will be realised due to extremely competitive market conditions for developers of projects:

- Most of the large scale natural resource projects of recent years have finished or are winding down resulting in significant surplus capacity amongst mining and construction contractors;
- This in turn has led to a reduction in demand for mining and plant equipment with a large amount of surplus and second-hand equipment in the market adding pressure on new equipment vendors; and
- Continued reductions in construction and mine site jobs has improved labour availability and led to a reduction in wage rates.

Besides the reduction in forecast pre-production capital expenditure to A$143 million, cash costs for the first 3 years are extremely competitive at US$124/mtu while life of mine cash costs at US$148/mtu are also attractive against average site cash costs of around US$165/mtu for a typical Chinese operation producing a 65% WO3 concentrate in 2013.

Analysis

The JOGMEC tender process establishes a clear and firm timeline for Vital Metals to advance the Watershed Tungsten Project and achieve its goal of becoming a top global tungsten producer.

Securing the long-term Japanese customer will fast track development of the project by helping secure key debt funding and possibly offtake tungsten production.

This includes attractive Japanese funding on a 70:30 debt:equity ratio.

Long-term outlook for tungsten is positive with global usage continuing to grow year on year at around 5% while the European Union has recently voted on a measure will lead to a significant reduction in the use of material that's illegally mined and sourced.

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