company profile

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vietnam, australia

hazelwood resources

market is vietnam junior’s for takingHaving started the year in a blaze of glory, with record ferrotungsten sales from its Vietnam plant and prefeasibility completed for its Mt Mulgine tungsten concentrator in WA, HAZ’s future is looking bright. Anthony Barich reports

Hazelwood Resources (aSX:Haz) has capitalised on being in a small specialty sector of

the tungsten industry.It has weathered the storm of 2012

and persevered through the market’s lack of understanding of ferrotungsten (Few) to emerge as one of the dominant players in its space.

Haz has a 60% interest in the aTC Ferrotungsten Project in Vietnam and is moving toward 100% ownership.

The aTC facility is the largest, most advanced Few plant outside China. In the process, the company has seen grades increase to an average 78% tungsten content, exceeding typical market expectations.

The furnace throughput has also improved and now typically processes 22 tonnes per day of tungsten concentrate.

But the major news for the first quarter of 2014 was Haz’s announcement that it had shipped about $a13 million of high-grade Few from its recently completed third

campaign at the aTC project.This campaign was the company’s

largest yet, run until January to match the arrivals of new feedstock coming from a range of international sources.

overall, the production campaign was expected to generate about $12 million in ferrotungsten sales – so the result stunned the market and showed Haz was a force to be reckoned with.

during the ramp-up phase of the project, more than 500t of the specialty alloy has been shipped, representing more than $20 million in sales.

The aTC facility was newly built in 2012 and is supported by an experienced team of production engineers from the Chinese tungsten industry. Haz sells the material with the assistance of wogen Resources, a veteran minor metals group with 40 years’ experience.

Haz’s plant, while relatively simple in its layout, is highly technical. Its operations team has been hand-picked from the Chinese Few industry, which is a pioneer of innovation, and their skillset has been lost in the outside world as to how to run the process. So Haz has the cream of the crop.

Haz managing director Terry Butler-Blaxell said the operation itself had been incredibly capital efficient.

Having built the plant for about $12 million, the company was expecting a turnover of $55 million by the 2014 calendar year and $100 million the year after. Full capacity is $140 million turnover.

Haz also has some assets in australia that it will look to integrate into the Vietnam refinery down the track. However, the company is in the unique position of being able to take

its time to choose the most capital-efficient path for vertical integration.

“The company can certainly make some money in the meantime by sourcing external feedstock,” Butler-Blaxell said.

In december, Haz announced it had completed a $5 million share placement, with a share purchase plan to raise an additional $2 million underway.

That said, Butler-Blaxell added that the company’s cash position had been tight recently because it had been tied up buying increasing levels of feedstock to meet the ramp-up schedule.

“So the company did the raising just to help with the ramp-up profile. Given that the project has doubled its production in each ramp-up campaign to date, a lot of working capital has been used,” he said.

He noted that while the company had had conversations with major banks, providers of debt on Tier 1 mainstream, “it keeps coming back to us that we need at least 12 months of operating cash flows before we’re candidates for conventional bank sources of financing for inventories”.

There is no doubt the company is on the right track though, because its market capitalisation has drifted into the $50 million range a few times now, with indications that the company is starting to attract interest from the institutional investors.

The business plan is simple but effective – and the way the tungsten market is heading, it’s all good news for Haz looking into the future.

“we operate in a small specialty sector of the tungsten industry,” Butler-Blaxell said.

“our end users are different –

MARCH 2014 resOurCestOCKs

Ferrotungsten from the ATC facility.

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hazelwood resourcesat a glance

head office Unit 2, 13 Oxleigh DriveMalaga WA 6090AustraliaPh: +61 8 9320 5220Fax: +61 8 9320 5299Email: info@hazelwood.com.auWeb: www.hazelwood.com.au

directors Terry Butler-Blaxell, Frank Ashe, John Chegwidden

Market capitalisation $A38.2 million (at publication)

Quoted shares on issue1.158 billion

Major shareholders Valentino Nominees Pty Ltd 5.51%Jemaya Pty Ltd 4.18%Perth Select Seafoods Pty Ltd 3.65%Baxchang Pty Ltd 2.93%Tarney Holdings Pty Ltd 2.74%

The ATC plant in Vietnam.

they’re the steelmakers and foundries who use our ferrotungsten to make tool steels and high-speed steels, along with temperature and corrosion-resistant alloys.

“The Chinese put a 20% export tariff on the material, and have restricted the production and supply to the outside world. Hazelwood is the only western company making ferrotungsten in any quantity.

“There is another small producer in Vietnam but it has been besieged recently, with Hazelwood able to capture market share.

“Hazelwood had issues raising the money to buy feedstock initially, because it’s common knowledge that its ferrotungsten feedstock is challenging to get hold of, which is why there are a plethora of western companies talking about building tungsten mines.”

HAZ sources material from a range of international sources and also locally in Vietnam. Wogen has been of great assistance in feedstock procurement, both logistically and financially, drawing upon its wide network of sources.

Elsewhere in Vietnam, the world’s largest tungsten mine - Masan Resources’ massive Nui Phao polymetallic mine - has just moved online, for which tungsten is a by-product.

Vietnam is expected to emerge as the second-largest tungsten-producing nation in the world behind China in the coming years.

For FeW consumption, the main geographic segments HAZ focuses on are Japan and Europe, although it has sold product to consumers in all geographic market segments.

HAZ’s ATC plant can make 4000tpa of ferrotungsten, containing 3000t of contained tungsten. Ferrotungsten was fetching $US47/kg in February.

“The recovery in the non-China steelmaking sector is quite reassuring,” Butler-Blaxell said.

“Europe is heading for a good year in 2014, as is Japan, so we are approaching pre-GFC levels of usage of tungsten in steelmaking.

“Hazelwood has surprised itself by penetrating a number of other geographic sales areas outside the mainstream European and Japanese sales territories, selling material to Ukraine, Russia, South America, and even the US.

“The quality of our product and the traceability of our supply chain is something that compels the people to look at our material.

“If we don’t supply it, the end user has few choices. They can buy Chinese ferrotungsten with a 20% export tariff, or smuggle the material – and borders are far less porous now. With these factors in play, the market has been Hazelwood’s for the taking.”

HAZ has two advanced tungsten deposits in Western Australia that could be potential sources of feedstock and offer the company additional margins to its overall business – Mt Mulgine and Cookes Creek tungsten projects.

On January 29, HAZ announced that the engineering prefeasibility study for its 330,000tpa Mt Mulgine project revealed a capital estimate of $31.5 million for the concentrator; with infrastructure options to be assessed. It also outlined a capital-efficient path to vertical integration, in keeping with the company’s impressive track record in this area.

“Sales margins for ATC look to be initially around 10% during ramp-up and are improving with capacity,” Butler-Blaxell said.

“If we vertically integrate with our upstream mining assets in Australia, we believe we can add about $10/kg to our bottom line, so overall the affect on the business would be a 30% margin – not bad, if you can get it.”

He noted that tungsten concentrate represented 90% of the operating cost of the ATC ferrotungsten project.

“The challenge is to develop a low lead time mining project at the right scale that can readily recover the capital,” he said. “These results move Hazelwood closer to the potential to provide a strategic internal source of tungsten feedstock to our very successful ferrotungsten processing business in Vietnam.”

MARCH 2014 RESOURCESTOCKS

“There is another small producer in Vietnam but it has been besieged recently, with Hazelwood able to capture market share.”terry butler-blaxellhazelwood resources