25-05-2025
Tasmanian government issues $7.5m loan to struggling tungsten mine after previous loan converted to shares
The Tasmanian government has issued a $7.5 million loan to a struggling King Island tungsten mine, having just become a shareholder in the mine's owner to help prevent it from going under.
Australian-owned Group 6 Metals — which owns the Dolphin mine, Australia's largest mined tungsten deposit — disclosed the new loan in its most recent quarterly update to the Australian Stock Exchange.
It was not announced by the Tasmanian government.
A government spokesperson said the loan was approved because the mine is "critical" for regional employment and economic activity.
"The $7.5 million loan was an important element of the business transformation plan that aims to deliver operational improvements to mining and processing activities to achieve profitability and growth, as the demand for tungsten continues to grow," the spokesperson said.
The loan comes from Tasmanian Development and Resources' borrowing facility and does not require additional budget funding, the spokesperson said.
It's the latest in several financial commitments by the Tasmanian government to both get the mine reopened and keep it operational.
In 2021, the government approved a $10 million loan to previous owner King Island Scheelite to restart operations at the mine, which shut in 1990 due to low tungsten prices.
At the time, the government said it wanted to see it result in a "clever, job-creating mine".
It reopened in May last year, but the mine — now owned by Group 6 Metals — encountered financial difficulties and was suspended from trading on the ASX in October, on the brink of entering administration.
The company's board chair was replaced, and its managing director, two non-executive directors and chief financial officer all resigned.
New Group 6 leadership embarked on an $80 million recapitalisation plan, with its creditors — including the Tasmanian government from its $10 million loan — asked to convert debts into equity.
The government agreed, and now owns 12 per cent of the company's shares — the equivalent of about a $20 stake for each Tasmanian.
The shares were issued at 0.04 cents, but the company's latest trading price was 0.025 cents — a more than 30 per cent reduction.
The government then approved the new $7.5 million loan at 12 per cent interest over two years.
Group 6 Metals recorded negative net cash flow of $12.1 million in the December quarter and negative $7 million in the March quarter, but new executive chairperson, Kevin Pallas, said the company was progressing with production improvements "without delay".
China accounts for about half the world's tungsten mining, with very few other countries supplying the critical metal.
Its main use is in hardening steel, critical for the mining, construction and weapons manufacturing sectors.
China's rapid increase in tungsten mining in the 1990s is considered to be a factor in the collapse in the global price, which was a precursor to the first closure of the King Island mine.
David Cooke, from the Centre for Ore Deposit and Earth Sciences at the University of Tasmania, said population growth and technological improvements were causing demand to increase.
"It's in the national interest, and global interest, to have viable tungsten mines operating for viable supply chains, so that you can't have your supply shut off for geopolitical reasons.
"I'm sure there's also the fact that the King Island economy would be benefiting from having a mine operating again."
He said direct government investment in mines was not unheard of, citing Sweden as an example.
The tungsten mine has faced a range of challenges, which the company's new leadership has put down to shortcomings during its recommissioning.
In January, Mr Pallas said it had struggled to achieve improvements to its process plant performance, there were "continued delays" in decision-making on plant component changes, and "poor supplier relations".
The mine continued to face breakdowns, which Mr Pallas said was due to "strategic errors in the original commissioning".
It also had a poor safety record, with three lost time incidents for workers in the December quarter, and another two in the March quarter, along with high employee turnover.
Mr Pallas told the ASX these matters are being addressed "systematically", and that it will take "time and investments" to improve the plant's performance.
Group 6 Metals is aiming to start trading again on the ASX "in the near future", with the debt recapitalisation plan central to this.
Greater clarity on the value of the Tasmanian government's shares will be known when trading recommences.
Its debt-to-shares conversion resulted in a significant dilution of the shares for smaller shareholders.
Sam Baker, from Shadforth Financial, said having a government be a significant shareholder in an ASX-listed company was "a bit unusual", but was also largely unavoidable due to the company likely going under without the changes.
"The financial assistance has tended to not be in an ASX-listed company … but there is a fair bit more transparency around it, due to the company being bound by reporting requirements by the Stock Exchange," he said.
