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W Resources well on the way to building the largest tungsten mine in Europe

La Parrilla's internal rate of return rings in at a chunky 64%, and that's before commodity upside is taken into account
tungsten periodic table
The tungsten price has strengthened in the past 12 months

W Resources PLC (LON:WRES) has a broad portfolio across the Iberian peninsular. It has three tungsten projects, La Parrilla in Spain, and Régua and Tarouca in Portugal. In addition, the company holds the CAA Portalegre gold-copper project in Portugal and the Monforte-Tinoca copper project, also in Portugal.

W Resources now has a US$35mln loan in place to help fund the development of the La Parrilla tungsten project in Portugal. This loan started out as a US$30mln facility in December 2017, but was extended early in 2018 as due diligence conducted by the US Special Situations fund that will be the lender provided increased confidence.

Meanwhile, in January, a contractor was appointed to undertake the construction of the concentrator at La Parrilla at a cost of €8mln. “All major plant components are now contracted and aligned with the term financing,” said W Resources chairman Michael Masterman at the time.

Large resource base to work off

The project’s established resource amounts to 49mln tonnes of ore grading 998 parts per million (ppm) tungsten trioxide (WO3), with reserves ringing in at 29.8mln tonnes at 931 ppm tungsten.

Plans in place to produce an initial 2,700 tonnes of tungsten concentrate per year 

According to a final investment decision, approved by the board of W Resources in August of 2017, the plan for La Parrilla involves a two-stage development.

The first stage will involve the construction of an operation capable of processing two million tonnes of run of mine ore to produce 2,700 tonnes of tungsten (WO3) concentrate per year.

Second stage ramp up to 4,000 tonnes per year envisaged after two years

The plan is then to recycle some of the new cashflow into the expansion of the project such that processing capability rises to 3.5mln tonnes per year and production hits 4,000 tonnes of tungsten concentrate.

The increase is expected to kick in in the third year of production, with a rise in processing to 3.2mln tonnes, and the full boost to 3.5mln tonnes expected in the fourth year of operations.

Significant margins on offer

When the board of W Resources took its final investment decision to move forward with La Parrilla in the late summer of 2017, it used certain pricing assumptions for the commodities involved, in particular tungsten, at between US$240 and US$325 per metric tonne unit (mtu), and tin, at between US$18,000 and US$20,000 per tonne.

Using those assumptions, the project looks set to generate an after-tax internal rate of return of 64%.

However, over the past 12 months the tungsten price has been on a significant upward trajectory, and cash ask tin is well above US$20,000. So returns could be higher even than envisaged in the final investment decision.

As it stands, the project is expected to have an EBITDA margin of 57%, to offer payback within two years, and to generate nearly US$30mln in EBITDA per year on average over the current six year mine life.

Shares are well supported by interested parties, dilution kept to a minimum

Chairman Michael Masterman speaks for more than 17% of the shares overall, and is the largest shareholder, so his interests are directly aligned with all other shareholders on the register. As a result, investors can be assured that dilution will be kept to a minimum, and the way development at La Parrilla has been financed almost exclusively by loans is a testament to that.






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