Manganese is a critical metal to the steel industry, knowing that it has no satisfactory substitute in its major applications. Although rather unknown to the bigger public, manganese is the fourth most used metal after Iron, Aluminum and Copper, and has no domestic production in the USA.
Manganese, strategic metal, but no
domestic production in the USA.
Market Outline
Manganese is a critical metal to the steel industry, knowing that it has no satisfactory substitute in its major applications. Although rather unknown to the bigger public, manganese is the fourth most used metal after Iron, Aluminum and Copper. Manganese is a strategic metal to the U.S. because there is no North American production in this region. Electrolytic manganese is even more vital, knowing that China accounts for 97.44% of the world’s supply of 2.5 billion lbs. per year. The world is almost totally dependent on China for their electrolytic manganese requirements, while China is cutting its exports to meet its own demand while also charging a 20% export tax.
On top of that, there is a 14% import duty on manganese coming into the USA, meaning that domestic production has a fiscal advantage over imported manganese. Per ton of steel produced, roughly 25 pounds of manganese is required. According to the American Iron and Steel Institute, the USA alone produced 63M of steel in 2009, do the maths! We have found the perfect company to anticipate on this lack of domestic production.
American Manganese Inc.
Company Statement
American Manganese Inc. is a mineral resources company actively engaged in the acquisition, exploration and development of a diverse portfolio of metals in demand commodity markets. The company focus is on the growing market opportunities in the Steel Industry, evidenced by its recent bold play into the rising Manganese Market with acquisition of Artillery Peak Manganese Properties in Arizona, recognized as the largest known manganese deposit in the USA at a time when this strategic metal faces declining supply resources. Drilling, leach testing, and mine planning are underway.
American Manganese is – as far as we know – the only new company that will produce Electrolytic Manganese within the next 5 years. Their Artillery Peak project is located in Arizona, so they are perfectly located to serve domestic demand.
It’s rather ridiculous that AMY’s Market Capitalization is still this low, as they 1. Already outlined a resource estimate, and 2. Completed a Preliminary Economic Assessment (hereafter ‘PEA’).
The Preliminary Economic Assessment (PEA)
Back in August 2009, American Manganese completed its PEA, which confirmed the excellent economics of the project. The projected cash cost of the Artillery Project is only 44 c/ lbs, which makes AMY at this point virtually the lowest-cost Electrolytic Manganese producer in the world. Capital Expenditure (CAPEX) should also come in fairly low at only 90M USD.
Remarks: The PEA with NPV@8% of 388M USD is based ONLY on 20% of the current resource estimate, and at a base price of US$ 1.10/lbs (current price FOB inside USA: 1.60 US$/lbs.)
Why Electrolytic Manganese (EM)
97.5% of the Electrolytic Manganese is produced in China. Recently, China announced their export of EM dropped by 50% in 2009, and they are now charging a 20% export tax on it. By producing EM, the producer can be confident to receive attractive prices, because the average cost to produce EM in China is currently US$0.80-0.90, so it’s extremely unlikely the Chinese will hurt themselves by letting the Mn price drop below their break-even price. EM demand has grown 26%/year over the past 5 years.
Our projections
If we apply a 100M lbs/year production (management estimates: 108M lbs) at 0.50 cash cost (management estimates: 0.44), and a CAPEX of 100M USD (PEA: 90M), we are able to project the following economics:
Risks
Financing Risk. The company still needs money for exploration, Definitive Feasibility Study, etc. On top of that, they need to find 90-100M USD to pay the CAPEX. It would be ideal if a US Steelmaker would jump in, and secured an offtake agreement on the whole Artillery Peak production. At a 100M lbs/y rate, avoiding import taxes on EM at current Mn prices, could mean a gain of 15- 20M USD annually for the steelmaker.
Permitting Risk. The company has no mining permits yet, but we don’t expect much difficulties there.
