W Resources (LON: WRES) is currently focused on near-term production from its wholly owned La Parrilla tungsten and tin mine located in southwest Spain. The Company is in the final construction stage of the new large-scale concentrator plant and has already commissioned the new crusher and jig plants. The newly commissioned crusher and jig plants are now operating at near design capacity. As such, we expect the Company will be able to ramp-up production during Q3 2019.
Fully funded, low capital intensity with a long mine life La Parrilla is a fully-funded, large low-cost tungsten and tin open pit operation. The Company expects to initially process 2Mtpa producing some 2,700t of tungsten concentrate and 200t of tin during the T2 Phase. An expansion phase (T3.5) is expected to process 3.5Mtpa in year 3, producing some 4,000t of tungsten concentrate. Total JORC-compliant reserves are estimated at 29.7Mt grading 931ppm (0.1%) WO3 and 116ppm (0.01%) Sn.
Tungsten outlook: increased demand to drive APT prices
Whilst European APT prices are likely to remain soft relative to 2018 over the near-term, we see prices recovering due to supply constraints coupled with increased demand. In the longerterm, as global consumption continues to grow, albeit at a slower pace, and production continues to lag, we expect European APT prices to recover to incentivise producers to bring new capacity on line to meet increased demand.
Promising pipeline of projects in Portugal
Elsewhere in WRES’ portfolio, development work continues at the Régua tungsten project in Portugal. Infill drilling of the mine entry portals has been completed and the database is currently being updated as well as a revised resource estimate. Drill results returned thick, high-grade intercepts including 29m grading 0.75% WO3 (drill hole RGR015) and 6m grading 0.43% WO3 (drill hole RGR020). A haulage and crushing contract has been recently signed with a local contractor.
Located 20km from Régua is the Tarouca tungsten and tin project where high-grade zones have been intercepted including 1m grading 2.9% WO3 and 3m grading 1.2% WO3. WRES’ São Martinho gold project has a JORC-compliant resource 3Mt grading 1.04g/t Au.
The best intercept was 56.4m grading 2.34g/t Au from surface. Management has a near-term target of some 250koz. Consultants are working towards an updated JORC-compliant resource.
Valuation: SOTP at 1.07p per share (un-risked)
We value W Resources plc on a SOTP basis based on a DCF model for La Parrilla (given its imminent production) and provide a relative valuation based on our selected tungsten explorers and developers peer group for the Régua project. Assuming a discount rate of 10%, a flat longterm tungsten price of US$300/mtu, a 10-year life of mine and inputs from the Final Investment Decision Report (August 2017), we calculate an NPV of £85.1m for La Parrilla. To this we then add an implied EV of £3.9m, based on our average EV/resource multiple of 3.2x for the Régua project. Taken together, our SOTP un-risked valuation implies a £89m, which translates into an equity value of £64.8m or 1.07p per share, representing a 155% upside to the current share price of 0.42p
