Why Warren Buffett is Loading Up on Tungsten

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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.

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Join the conversation. Click here to jump to comments…

  1. jessie | June 11, 2012

    I am going to buy woulfe mining shares like there is no tomorrow!!!!

  2. topdog | June 11, 2012

    Buffett is loading up on tungsten… I'm loading up on Woulfe Mining… what… maybe they will be the next major miner out there… I want in, in a big way;)

  3. Doc William | June 11, 2012

    About PCYC….I think my subscription began well after April 2…maybe in May, so I missed the jump on this one. My notes said, "wait for pullback." well…it never came. The stock is way overbought but I see no evidence of a pullback yet, so I guess I will enter now with a protective stop.

    I confess that I am suspicious of newsletters jamming my mailbox with speculation. I've no time nor interest in reading that material. But, I scan it daily for recommended stocks to analyze for possible option plays. Well, the first two I safely entered from my paper account. They did so well, I regreted not having cash-traded them! Then, later I entered XHB in my cash account. It is doing very well at present…

    So, Bill, my trust is building with you. I want express my gratitude for your fine service…

    William

  4. cultus | June 11, 2012

    I believe Tungsten is approx $430 per Metric Ton Unit ( 10kg ) … not per Ton ( 2,000 lbs ) as you state.

  5. DD | June 11, 2012

    I read a couple of years ago that if it were not for the 2008 bailouts, about 75% of Buffett's wealth would have been wiped out!
    Buffett was heavily invested in AIG and Goldman Sachs to name a few, who would have been forced to sell their derivatives if they had not had received TARP money at the tax payer’s expense. Buffett is certainly being protected by a hierarchy or inner circle, so he can continue to hang with the big boys!

  6. Tage Mohr-Jensen | June 13, 2012

    I would like to have some information on Tungsten.

    Thank you.

    Tage Mohr Jensen

  7. THR Thor Minning | June 15, 2012

    Thor THR Minning is a good bet IMO Australian stock 2.3c at the moment Have a look
    Disclosure I have stock in Thor Minning

  8. Metallurgist | September 11, 2012

    This article is spot on. Tungsten is in short supply and will only be getting more valuable going forward. I'm getting Woulfe before the mine comes online. Warren Buffet knows what he is doing!

  9. Tim | November 16, 2012

    Try WRES on AIM. Tungsten will be produced in europe from Q2 2013.

  10. 000064881242 | October 26, 2013

    Not Tungsten, but equally desired stragegic metal: Antimony. FLPC just conducted 6 blasts and material is on the way to market, they have several buyers lining up and maybe, just maybe DOD.

    Check them out, Tungsten shares in companies, just to priecy for meees.

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