We visited Blackheath’s Covas and Borralha projects in Portugal last month. As they seem to have the right people and the right projects in the right country, we’re looking forward to see their exploration results.
Introduction
The company is focussed on tungsten exploration and development in Portugal and holds interests in its maiden property; the past producing Covas tungsten mine in northern Portugal – a country with a highly attractive geological setting conducive to the discovery of mineral deposits and with a supportive legislative environment. Blackheath also has recently acquired the rights to a 100% interest in the past-producing Borralha tungsten mine and the past-producing Bejanca tungsten/tin mine in northern Portugal.
We visited Blackheath’s Covas and Borralha projects in Portugal last month.
Covas
The Covas project is approximately 100 km north of Porto and is easily reachable through highways and paved roads which are literally running to and through the company’s landholding.
The Covas project is a past-producing underground and open pit tungsten mine which produced approximately 225,000mtu of tungsten between 1951 and 1974. The mining operations were ceased after the tungsten price plummeted. From 1974 to 1980 Union Carbide (which is now a subsidiary of Dow Chemical) started exploration work on the property and drilled 329 drill holes for a total of 27,000 meters.
The Resource Estimate
This drill program by Union Carbide resulted in a historical (and thus non-NI43 compliant) resource estimate of 923,000 tonnes at a grade of 0.78% tungsten, which is approximately 720,000mtu (metric tonne unit, which is 10 kilograms). At the current price of tungsten, which is approximately $400/mtu, this translates into an in situ value of $288M. This is obviously already a good starting point, but Blackheath’s management team is convinced there’s much more to be found on this property, as only 40% of the skarn ring has been tested so far.
Blackheath drilled the Telheira target last year, and this resulted in high grade zones of 8 meters at 2.11% tungsten (which translates into a rock value of in excess of $825/tonne). The company believes they will be able to prove up more high-grade ore which will be beneficial to the average grade of the project.
When asked about the expected drill efficiency, CEO Jim Robertson answered he expects to find a higher amount of mtu per drilled meter than Union Carbide’s average of 26mtu/m. After talking to Mr. Robertson, who’s a veteran in the industry (see bio), we are confident the Covas project will contain in excess of 2 million MTU WO3 before the end of 2015.
Near-term cash flow?
Blackheath expects to be issued their experimental mining license within the next few weeks. This license will be valid for 3 years and will allow the company to extract ore and process it. We expect Blackheath to focus on exploration for the first 18 months, whereafter it’s very likely they will start a test-mining program. This will also be helpful for metallurgical studies as they will be able to incorporate all test results In future economical studies.
The acquisition terms
Blackheath has already vested an interest of 51% in the Covas project and should increase the ownership to 70% later this year. The company has the option to further increase its interest by completing a PEA on Covas, after which they’ll own 85% of the property and Avrupa Minerals (AVU.V) will be the owner of the remaining 15%. In our discussion with Paul Kuhn, CEO of Avrupa Minerals, it became clear Avrupa would have no problem to convert their 15% ownership into an NSR.
Borralha
The company’s Borralha project is approximately 50 kilometers away from Braga, a university city about an hour northeast of Porto. As this project also is a past producing mine, the access to infrastructure is phenomenal with again paved roads right to the mine gate and a hydropower plant just 10 kilometers away.
The Borralha project will very likely be lower-grade than Covas, and the geologists on the ground expect a grade between 0.15 and 0.2% tungsten. The big advantage of Borralha will be the possibility to use economies of scale, as this project has the looks of a very large but low-grade mineralized orebody. We talked to some of the local Portuguese geologists, and they think a first resource target of 25 million tonnes at 0.2% tungsten wouldn’t be too optimistic. This would result in a total resource base of 5M mtu for an in situ value of approximately $2B.
We think this project might be a little bit too big for Blackheath and wouldn’t be surprised if they would bring a joint venture partner in at a later stage to fund the advanced exploration work.
Blackheath is currently drilling some holes at Borralha to test two large and partially undeveloped breccia zones, and we expect to see some exploration results later this summer.
Bejanca
We didn’t visit the Bejanca project but spent some time with CEO Jim Robertson and newly appointed VP Corporate Development Alexander Langer discussing the project in detail.
Bejanca is another past producing tungsten/tin asset (2/3 of the historical production was tin with the remaining balance being tungsten) which was mined by the Germans during the second world war, after the British declined to acquire the project. After the war, Bejanca was confiscated by the Allied Forces as it was considered to be a German property.
Blackheath is currently doing some trenching work on the property, and we are looking forward to see those results.
The acquisition terms of Borralha and Bejanca
Blackheath will undertake to fulfill the terms of each Concession, including staged minimum exploration expenditures at Borralha totalling €980,000 over five years, and staged minimum exploration expenditures at Bejanca totalling €650,000 over five years. Under each agreement, Blackheath will pay Mineralia (the vendor) €25,000 upon execution of this definitive agreement, a further €100,000 upon the grant of a preliminary exploitation license and a further €1 million upon mine production and the grant of a final exploitation license, at which time Blackheath will hold a 100% interest in the project with no further obligations to Mineralia.
Management Team
James Robertson, B.Sc., P.Eng. – Director, President and CEO
Mr. Robertson holds a B.Sc. in Metallurgy from the University of Nottingham and is a Professional Engineer in the Province of British Columbia. He has been actively involved in the mining industry and public resource companies for over 40 years and founded several companies, two of which graduated to full listings on the London Stock Exchange. Mr. Robertson is the principal and owner of Midas Management Inc., a private management company that provides services to junior resource companies seeking public listing and financing and to established companies in maintaining their corporate obligations. He was a founding director and Vancouver manager of Primary Metals Inc., a TSX Venture Exchange-listed company owning the operating Panasqueira tungsten mine in Portugal before its sale in 2007 to a subsidiary of the major Japanese conglomerate, Sojitz Inc.
Alexander Langer – VP Corporate Development
Mr. Langer is a successful public markets specialist with over 9 years experience in all aspects of equity financing. He worked with Canaccord Financial for 4 years as an Investment Advisor. Prior to joining Blackheath Resources in May 2013, he was Vice President Capital Markets for a TSX listed exploration company and has worked with numerous publically traded companies in various senior management positions. To date, Mr. Langer has helped raise over $200 million for junior and mid-sized resource companies. He is also a founding Director of High North Resources, an oil and gas exploration company listed on the TSX Venture Exchange.
Jonathan Carter – Director
Jonathan Carter is a businessman with over 35 years of experience in marketing and metal sales with particular experience in tungsten. He was previously employed by Minorco plc and Waller Metals Inc. as Sales Manager with particular reference to the sale and trading of tungsten concentrates and products. He was President and a director of Primary Metals Inc., a TSX Venture-listed company owning the operating Panasqueira tungsten mine in Portugal before its sale in 2007 to a subsidiary of the major Japanese conglomerate, Sojitz Inc.
J. Merfyn Roberts, B.Sc., M.Sc., CA – Director
Merfyn Roberts has over 30 years of experience in fund and portfolio management. Until recently, he was a Senior Portfolio Manager with CQS Management of London, United Kingdom. He is a member of the Institute of Chartered Accountants of England and Wales and holds a Bachelor’s degree in Geology from the University of Liverpool and a Master’s degree in Geochemistry from the University of Oxford. Mr. Roberts currently serves as a director of Toronto Stock Exchange-listed companies Agnico-Eagle Mines Ltd., and Eastern Platinum Limited, and of other TSX Venture Exchange-listed companies.
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Why Tungsten?
- Concerns over security of supply of tungsten concentrates to western processors and industry end-users resulted in the EU categorising tungsten as a “critical raw material”.
- Tungsten demand is forecasted to grow by 5-8% annually between 2012 and 2016.
- China accounts for over 80% of world tungsten mine production; western world supply is very limited.
- USA, Europe and Japan consume ~55% of world tungsten, but produce only ~5%.
Conclusion
Blackheath Resources offers investors exposure to a potentially booming tungsten market. As the company is operating in a safe country with a stable political situation, we believe Blackheath could eventually become one of the largest suppliers of tungsten outside of China, Russia and Bolivia. Those three countries aren’t the most reliable counterparties for tungsten supply, but they produce approximately 90% of the entire world output.
CEO Jim Robertson has experience with both tungsten and the country, as he was a founding director of Primary Metals which operated the Panasqueira Tungsten mine in Portugal. Primary Metals started trading at C$0.15/share and was subsequently taken out at C$3.65/share just four years later. We are hopeful he can repeat this trick with Blackheath Resources, as the company currently has an enterprise value of C$3M and is earning in on three past producing tungsten mines. The Covas project seems to be the higher-grade flagship project (as its grade is approximately 4 times higher than the currently producing Panasqueira mine), while the potentially gigantic Borralha project offers serious blue sky exploration potential as the exploration target is anywhere between 25 and 50 million tonnes.
Blackheath seems to have the right people and the right projects in the right country, and we’re looking forward to see their exploration results. As trading volume is very thin, we’d recommend working with limit orders.
Disclosure: Blackheath Resources is a sponsoring company. Our site visit costs were reimbursed by the company. Please see our disclaimer for current positions.
