MIDAS SHARE TIPS UPDATE: Wolf shares bounce back as tungsten mine moves closer to production
Wolf Minerals is a stock with sentimental value. The group is about to open the first new mine in the UK for more than 30 years, producing tungsten, an exceptionally hard-wearing metal used in a wide range of industrial equipment.
Building a mine is complex, difficult and expensive and Wolf has been through some difficult times over the past few years.
Last week, however, it moved a decisive step closer to production, with the final trials of its processing plant just outside Plymouth.
Gearing up: The mine is just months away from delivering the metal
Midas recommended Wolf in January 2012, when the shares were 19.75p. We looked at the stock again last October, by which time the price had fallen to 13.375p.
Today, the price is 20.25p, buoyed by recent progress and the prospect that Wolf is on target to deliver its first tungsten to customers in less than three months.
The positive news is only marred by a persistently depressed tungsten price. Ammonium paratungstate is the internationally traded tungsten-based commodity and it is now priced at about $230 (£146) per ‘metric tonne unit’, having fallen steadily since the beginning of the year.
The market is dominated by the Chinese, who are responsible for about 80 per cent of world supply and are keen to keep it that way.
Low prices deter new entrants, but they also make the Chinese industry less profitable, so there is a fine balance to be considered. External observers believe the tungsten price will rise over the coming months as demand increases. If they are right, the turnaround should happen just as Wolf moves into commercial production.
A price of $300 per unit could result in Wolf making profits of £7.5 million in the year to next June and if it rises to $375 and everything goes according to plan, profits of more than £35 million are predicted for 2017.
Midas verdict: It is exciting to invest in a UK mining company and shareholders who kept the faith last October have been rewarded.
The stock should gain ground as production moves ever closer. But investors need to bear in mind the factors governing the tungsten price. If that remains depressed, the outlook could change. The shares are a hold for now.
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