Blackheath Resources (BHR.V) has made tremendous progress since our last report as the company has been drilling on its two main tungsten projects in Portugal and has acquired several new projects. As Blackheath seems to be becoming the main tungsten exploration company, we thought it was time for an update.
Introduction
Blackheath Resources (BHR.V) has made tremendous progress since our last report as the company has been drilling on its two main tungsten projects in Portugal and has acquired several new projects. As Blackheath seems to be becoming the main tungsten exploration company, we thought it was time for an update.
The Covas Project
Blackheath’s Covas project is located approximately 100km north of Porto and is the company’s most advanced asset as the asset has a historical resource estimate containing 923,000 tonnes of ore at an average grade of 0.78%WO3. This grade might sound rather unimpressive but this is actually high-grade ore for a tungsten project. The tungsten price is approximately $365/mtu (metric tonne unit, 10 kilo) and the historical estimate of 720,000 mtu at Covas has a total in situ value of $263M at the current tungsten price. The rock value clearly shows why this project could be considered high-grade, as the rock value at Covas is roughly $285/tonne which is impressive. Just to make a comparison, a silver project would need more than 14 ounces per tonne to achieve the same rock value. And at the current gold price, a gold project would need an average grade of 6.8g/t gold. Quite impressive for an open pit project.
The Covas project is a past producing project and as such it shouldn’t be difficult for the company to receive exploration permits. It gets even better, as Blackheath was already awarded an experimental mining license valid for three years which allows the company to extract ore for processing. Even though this is a major achievement and milestone, this doesn’t mean Covas will be in production anytime soon, as more exploration work will be needed. But by being awarded an experimental mining license so smoothly, investors should be reassured the final permitting process once a viable resource estimate and mine plan has been proven shouldn’t be too hard.
In its most recent drill program at Covas, Blackheath Resources didn’t only expand the known skarn mineralization, it also discovered a new mineralized zone. The success rate was quite high as 12 of the 14 drill holes have intersected tungsten-bearing skarn mineralization.
Blackheath can earn an 85% interest in the project from Avrupa Minerals (AVU.V) by incurring 1M EUR in exploration expenditures and completing a feasibility study. However, after talking to Avrupa’s CEO Paul Kuhn, we have the impression Avrupa would be more than happy to convert its final 15% ownership into a royalty.
The Borralha Project
Blackheath’s second project, Borralha, also is an extremely interesting tungsten project as Borralha originally was the second largest tungsten mine of Portugal (only the Panasqueira mine was larger) before the mine was shut down because of the low tungsten price. The project has been dormant for about 30 years until Blackheath signed an option agreement whereby the company can earn 100% of the project by incurring 980,000 EUR in exploration expenditures, and paying 1.125M EUR to the optionor of which 100,000 EUR is payable when an experimental mining license is granted. The final 1M EUR is only payable when the project reaches the commercial production stage.
As this is a past-producing mine, the present infrastructure is just amazing, as there’s a paved road going right to the mine gate, a hydro dam is just a few kilometers away and Blackheath has recently started a drill program at the Santa Helena Breccia zone which is located just a kilometer from the large Borralha open pit, and we’re looking forward to see some drill results from the Breccia zone. This drill program is actually following up on a trenching program which yielded very interesting results such as 20 meters at 0.33% WO3 and 5 meters of 1.09%WO3. We hope this drill program will show a clear geological structure and whether or not the tungsten-bearing quartz veins are continuous.
The Bejanca Project
Bejanca is an interesting project because it’s a past-producing tungsten-tin project. We like this one because it could have a nice tin-kicker as by-product revenue and we expect the price of tin to evolve positively in the near and mid-term.
The project is located approximately 100 kilometers southeast of Porto and was in production until 1985. Based on the historical grades of 0.24% tin and 0.05% WO3 (for a total rock value at the current tin and tungsten price of approximately $74/t), this project could be considered a tin project with some tungsten credits as a by-product. However, a recent sampling program by Blackheath showed some very interesting and exciting results with tungsten values as high as 2.12% WO3. As we consider a mix of tungsten and tin to be very interesting and as the rock value of the historical production was quite high, we feel further exploration is warranted at Bejanca, and we’re looking forward to see what exploration activities Blackheath is planning for Bejanca.
Blackheath can earn a 100% interest in Bejanca by spending 650,000 EUR over 5 years in exploration expenditures, and paying the optionor 100,000 EUR when an experimental mining license has been issued and an additional 1M EUR after declaring commercial production.
The Adoria Project
Blackheath’s most recent addition to its portfolio was the Adoria project, where Blackheath can earn a 100% ownership by spending 220,000 EUR on exploration in the first two years of the agreement and making a payment of 100,000 EUR when an experimental mining license will be approved and another 1M EUR when the commercial production stage has been reached. We think this is a very interesting and cheap earn-in deal, as the Adoria project was a past-producing mine which produced tungsten and tin during more than 65 years until the mine was closed in 1972 due to the low tungsten price. Allegedly, more than 5,000 people were working in this mine during the second world war, so the Adoria project was an important supplier of tungsten and tin.
There aren’t a lot of details available on Adoria yet, but we hope to see some kind of exploration program being conducted later this year which should offer more clarity on the potential of this project.
The Vale das Gatas Project
Vale das Gatas was the third largest tungsten mine in Portugal, behind the Panasqueira mine and the Borralha mine (also owned by Blackheath Resources), so we were quite excited to see Blackheath adding this property to its portfolio in November of last year. Preliminary exploration work conducted on the property consisted of a sampling program which resulted in an average sampling grade of 0.35%WO3 and 0.11% tin (for a total rock value of $150/t). Additionally, it looks like all samples contained silver as well, which makes this project even more exciting. The (unweighted) average silver grade of the 16 grab samples was 96.5g/t which is in excess of 3 ounces of silver per tonne, which could increase the rock value to over $200/t.
More than 300 old mine workings and 24 wolframite-bearing veins have been identified on the property, and it’s not a coincidence this mine employed over 1,000 people at its peak.
Vale das Gatas is an extremely exciting exploration project as well, and we’re looking forward to see a diamond drill program on this property, as we feel Vale das Gatas could quickly evolve into a company-maker as well, given the fact that three important metals and minerals could potentially be recovered.
The acquisition terms of Vale das Gatas are once again extremely favorable for Blackheath, as the company just has to fund 220,000 EUR in exploration expenditures before the end of 2015. Additionally, 100,000 EUR has to be paid when an experimental mining license has been issued and a balloon payment of 1M EUR is due when commercial production has been declared.
Why Tungsten
Tungsten is an extremely important mineral for industries, as the USGS estimates in its 2014 Tungsten report ‘60% of all US-consumed tungsten is used in the construction, metalworking, mining, and oil- and gas-drilling industries. The remaining tungsten was consumed to make tungsten heavy alloys’. As China is a dominant player on the world tungsten market, several western countries and organizations such as the British Geological Survey, the European Commission and the United States Government have added tungsten to the list of critical or strategic minerals.
The world tungsten production is dominated by China, Russia and Bolivia which produce approximately 90% of the world’s output. Needless to say the western countries would like a more reliable source for a strategic mineral, and several companies have regained control over past-producing tungsten mines as the current tungsten price definitely warrants a closer look at past-producing assets as those projects might very well be viable right now.
Conclusion
We’re convinced the tungsten landscape will be re-shaped this decade as more end-users will be looking to become independent from a Chinese tungsten supply. Additionally, as China has switched from being an exporter of tungsten to becoming a net importer, the importance of tungsten resources and viable projects outside of China will be incredibly important for the western nations.
As Blackheath holds options to acquire 85%-100% of no less than five past-producing tungsten (and tin) mines in a safe and reliable region (Portugal), we are convinced this company is an excellent bet to play the future of tungsten. Thanks to the company’s connections in Portugal all these assets were and will be acquired on the cheap, which means that Blackheath’s shareholders will be able to reap the benefits if even just one of these projects comes to fruition.
Additionally, as Blackheath continues to expand its portfolio of past-producing tungsten assets, the company could become an interesting acquisition target for any mid-tier mining company further down the road if Blackheath is able to de-risk its current assets.
At a current share price of C$0.25 and with C$900,000 in cash, the enterprise value of Blackheath is just C$5M which could be considered cheap for a company with this type of assets.
Disclosure: Blackheath Resources Inc. is a sponsoring company. Please see our disclaimer for current positions.
