Who Says Warren Buffett Doesn't Like Commodities

Recently Warren Buffett made another shrewd move by investing heavily in a little followed metal - tungsten.

How it came about is IMC International Metalworking, which is 80 percent owned by Buffett's holding company Berkshire Hathaway (NYSE: BRK-A), invested $80 million in a South Korean mining project, which effectively gives Berkshire a 25 percent stake in the mine.

The Sangdong Mine, which was the object of the investment, is among the top tungsten producing mines in the world, and used to be the top tungsten producer.

Sangdong is operated by Woulfe Mining Corp. (TXSV: WOF), which was also guaranteed by IMC International Metalworking to buy up 90 percent to 100 percent of all the tungsten produced there.

With China being the top producer in the world and not in any way interested in exporting tungsten, that makes the Sangdong a major tungsten producer outside of China, accounting for about 50 percent of all tungsten produced beyond the Chinese borders.

The mine, which will resume production in 2013, is expected to produce about 7 percent to 10 percent of tungsten globally.

According to Nick Smith, manager of investor relations at Woulfe, he said in an interview with Tungsten Investing News that "Without tungsten, Western manufacturing comes to an end. You are not working with steel without tungsten. There's no global mining unless you have tungsten-tipped drills."

He's referring to the super hard characteristic of tungsten, which is used in multiple mining and manufacturing applications such as mining drill tips and circular electric saws.

One of its more practical and ubiquitous applications has been in the filament of incandescent light bulbs. It makes one wonder with the industrial and military applications if that's the major reason behind eventually eliminating the use of incandescent light bulbs in the United States.

Tungsten is also in high demand in the energy and high tech sectors, making a vital component of many industries.

China now accounts for about 80 percent of all known tungsten resources in the world, and as mentioned, isn't about to export them to aid its competitors. It has quotas on exports to ensure they maintain the supply in that country for its manufacturers.

Demand for tungsten has grown at a steady pace of close to 6 percent for a number of years, and if it continues at that pace, production will have to grow from 68,000 metric tons in 2011 to 96,000 metric tons by 2016.

In just three years the price of tungsten has skyrocketed from $180 a metric ton to about $430 a metric ton as of this writing.

Now you can see why Buffett has entered into the tungsten fray, which will undoubtedly rise in price continually into the future.

Unfortunately, at this time there isn't much in the way for investors to invest in tungsten other than in rare earths companies searching for it or an ETF that offers exposure to the metal. The problem there is it's only a one piece of a pie with many pieces.