Vital Metals Ltd plans to start production at its Watershed tungsten mine in Australia at a rate of up to 1,200 tonnes annually in 2010, when it tries to capitalise on a forecast upswing in world prices.

    Andy Haslam, managing director, told Reuters in an interview on Wednesday the mine, located in north-eastern Australia, will cost about $45 million ($US40.2 million) to develop.

    "We hope to finish our bankable feasibility study by October this year and be in production in 2010," Mr Haslam said. "Once the feasibility study is completed, we will look to the banks for funding."The rate of production is well under an initial target of 4,000 tonnes per year, which was scrapped earlier this year.

    Mr Haslam blamed the revision on the pressure of rising costs associated with digging more ore linked to the major appreciation of the Australian dollar during the study period, which also drove the Australian dollar equivalent price of tungsten down by about $70 per metric tonne unit (mtu).

    Tungsten, a metal with the highest melting point, is used in light bulbs and to harden steel found in weaponry, drilling and other high-strength applications.

    It has sold for about $US250 per mtu, or $US25,000 per tonne since 2005, up from about $US80 per mtu, or $US8,000 per tonne in 2004.

    Watershed is a large but relatively low-grade deposit, meaning large amounts of tungsten-bearing ore must be mined to yield the metal.

    Only one other tungsten mine exists in Australia, the smaller Wolfram Camp lode, which is owned by Queensland Ores Ltd and commissioned in mid-August.

    Two other mines, one in Tasmania and owned by King Island Scheelite Ltd and the other in the Northern Territory, owned by Thor Mining are in early development stages.

    "Australia is not a big player on the world tungsten stage," Mr Haslam said.

    At the maximum rate of production, Vital will supply about two per cent of the world market for the metal, he said.

    China is the world's main supplier of tungsten, but many of its mines are getting old and yielding less rich ores for processing, said Mr Haslam.

    "That, coupled with a 10 percent tarrif on tungsten exports, is reducing China's overseas shipments, he said.

    "At the same time demand is growing, the Chinese government is tightening its environmental controls on new mine development, meaning it is taking longer to bring new supplies there on line.

    Outside of China, established suppliers also are finding it difficult to maintain production as their mines are worked down, all of which threatens to curtail supplies needed to feed a 85,000 tonne-per-year global market, Haslam said.

    "Demand is growing at five per cent per annum and our own research points to prices rising as a result," Mr Haslam said.

    Over the next five years, tungsten prices should reach around $US300 per mtu, he said.