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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Why Warren Buffett is Loading Up on Tungsten

Commodities / Metals & Mining Jun 11, 2012 - 07:46 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDon Miller writes: Warren Buffett is at it again.

Although he says he doesn't want to own gold, the world's most famous investor has taken a shine to what may be the most precious metal of the 21st century - tungsten.


Tungsten - element number 74 on the periodic table -- is a super-hard metal used in everything from armor-piercing tank shells to wedding rings.

And the world is running out of it - fast.

That spells opportunity for savvy investors like Warren Buffett.

And it explains why IMC International Metalworking, part of Buffett's Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) empire, recently invested $80 million in a tungsten mining project in South Korea. The deal gives Buffett a 25% stake in what used to be the most productive tungsten mine on the planet. IMC has also guaranteed to buy 90%-100% of all the shiny metal from Woulfe Mining Corp.'s (TXSV: WOF) Sangdong Mine.

Sangdong is expected to produce half of the world's non-China tungsten and account for 7% to 10% of total global tungsten production when it reopens in 2013.

While the deal may come as a surprise to some, those in the know understand that Buffett just made another shrewd move to lock up supplies of a critical resource.

Tungsten - A Vital Part of Modern Life
Best known as the filament used in conventional light bulbs, tungsten is among the world's hardest materials.

Its ability to withstand extreme heat - the grey metal is corrosion and fire-proof -- makes tungsten irreplaceable in a wide range of applications, including circular electric saws, drill bits for oil and gas exploration, and rocket engine nozzles.

But tungsten is more than just an extremely hard metal. Indeed, modern life virtually revolves around it and, in most cases, there is no substitute.

"Without tungsten, Western manufacturing comes to an end," Nick Smith, Manager of Investor Relations at Woulfe told Tungsten Investing News. "You are not working with steel without tungsten. There's no global mining unless you have tungsten-tipped drills."

And now, high-tech industries are driving demand even higher.

Tungsten is vital to the manufacturing of electrodes used in solar panels and nuclear equipment. More importantly, it's a vital component in the touch screens of smart phones and tablet devices now exploding in popularity around the world.

In fact, while global demand has grown at a pace of about 6% for years, miners will need to expand production from 68,000 metric tons in 2011 to 96,000 by 2016.

China Crimps Tungsten Supplies
The problem is that supplies of tungsten are desperately short.

That's because China has more than 80% of the world's supply and has shut down most of its exports by imposing quotas on foreign purchases.

In fact, China is now a net importer of tungsten and expects to use all of its supplies to support its own manufacturing firms.

That means the rest of the world is scrambling to find new resources and open new mines-a process that takes a minimum of three years.

Tungsten mines are also very difficult to operate, processing large amounts of material to harvest relatively small amounts of metal, according to the International Tungsten Industry Association.

In fact, there are no more than five mines supplying most of the world's tungsten outside of China and Russia.

Consequently, tungsten was at the very top of the "endangered list," in a recent British Geological Survey report on metals of economic value.

Both the U.S. and European Union have also recently classified tungsten as a critical strategic metal that needs to be stockpiled.

Meanwhile, tungsten prices have rocketed from about $180 three years ago to roughly $430 per metric ton today.

That leaves industries dependent on tungsten with limited options.

Most are simply hoping current miners will increase supplies as fast as possible to keep prices from spiraling out of control.

Investing in Tungsten
According to Money Morning Global Resources Specialist Peter Krauth, the shortage of tungsten may soon present investors with a great investment opportunity.

"I think tungsten looks like a great commodities play going forward -- new supply is very limited outside China," Krauth says.

"It is however a difficult market to play, as investment options are limited mostly to very small cap junior mining companies that carry higher risk."

Investors who want some exposure might look at the Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX), which owns mining companies that search for rare earth elements, including tungsten.

Another way to bet on tungsten right now might be to ride along with Buffett by buying shares of Berkshire.

While Krauth isn't currently recommending any plays in the sector, his Real Asset Returns investing service identifies opportunities to cash in on the demand/supply squeeze in natural resources.

"Today's scarcity of natural resources and soaring costs could spur the biggest investment gains in history," Krauth says.

To read Peter Krauth's latest free report click here.

Source :http://moneymorning.com/2012/06/11/why-warren-buffett-is-loading-up-on-tungsten/

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