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Manganese switches to upward trend and ASX-listed players are poised to benefit

With Chinese manganese production expected to slow, Australian companies could be well-placed to benefit from recent price hikes.

Element 25 Ltd - Manganese continues on upward trend with ASX-listed players poised to benefit
The prices of manganese flake have risen 30% in the past month

After a rocky ride throughout 2020 there are encouraging signs for manganese at the start of a new year.

According to Argus Media, the range for 99.7% grade manganese flake was assessed at 13,800-14,000 Yuan/tonne ex-works on Monday, up by 600 Yuan/tonne from December 31 after key producers unveiled suspension plans for the coming two months.

Prices have risen by 30% in the past month, supported by higher production costs and a stockpiling drive by China’s largest manganese smelter Ningxia Tianyuan.

Manganese price rise

Tianyuan’s tender prices have been rising by 500 Yuan/tonne on a daily basis since December 10 and, according to Argus Media, China's largest manganese consumer Baosteel also lifted its tender procurement price for January delivery in response to a rapid rise in spot prices.

Baosteel’s tender price for manganese flake rose to 15,000 yuan/t ($2,320/tonne), up by 3,800 Yuan/tonne from the beginning of December.

To put this in perspective, Baosteel's tender price is equivalent to a spot price of 14,000 Yuan/tonne after deducting transportation and banking fees.

Chinese production slows

China’s manganese prices are expected to rise in the near term with production cuts caused by power shortages in many regions of the country.

Most of the country’s producers will suspend production for at least two weeks in February for maintenance during the lunar new year holiday, with some set to also halt output in January after Ningxia Tianyuan called on other producers to better control output and to support prices.

Overall operating rates in China's manganese market are as high as around 70%, with an output of 100,000-120,000 tonnes per month – with Tianyuan's output cuts potentially removing between 45,000-50,000 tonnes of supply from the spot market in January and February.

Timely production for Butcherbird 

This spot price boost is likely to benefit Element 25 Ltd (ASX:E25) (FRA:QFP) with the company securing key final approvals for its Butcherbird Manganese Project in Western Australia in December, paving the way for stage-1 construction and mining operations to begin.

The company expects first production to occur during the current quarter, with the first stage of the project potentially providing early cash flow to strengthen its balance sheet and assist in funding of a larger high purity manganese production hub.

E25 has experienced strong upward share price moves in recent months and its market cap is now sitting at around $204.3 million.

From 79 cents on November 2, the price climbed to an all-time record of $1.72 on December 10 and today has been up to $1.58.

Conservative pricing assumptions

Butcherbird is a world-class manganese resource with current JORC resources in excess of 263 million tonnes of manganese ore.

A recent PFS update indicated that the base case involves the annual production and sale of 364,000 tonnes (year 1- 5 range 300,000-390,000) of lump manganese ore grading 30-35% manganese.

The base case net present value (NPV) of A$583 million highlights that the project is robust and offers returns even at conservative pricing assumptions.

The project is expected to break even at a manganese price of US$2.38/dmtu (dry metric tonne unit) 33% CIF (cost, insurance, and freight) China for the life of the project.

Butcherbird financial summary – years 1 to 5.

Offtake pricing obligations

Key commercial terms have and continue to be agreed under a non-binding term sheet to sell 100% of the manganese ore produced - up to 365,000 tonnes per annum - from the first stage of the project to OM Holdings Ltd's (ASX:OMH) subsidiary OM Materials Pte Ltd under a take-or-pay offtake arrangement.

E25 has also agreed key commercial terms to sell 50% of the manganese ore produced from the second stage of the Butcherbird Project development to Singapore-based Semeru Energy Ltd.

The non-binding term sheet provides for a minimum annual allocation of 175,000 tonnes and a maximum allocation of 200,000 tonnes.

A key component of the offtake terms include obligations on Semeru to achieve the highest price for E25’s manganese concentrate and for E25 to direct that concentrate be placed with certain clients to achieve the optimal pricing.

Semeru will have the right to purchase ore from E25 at a price such that it can book a net margin of 2.4% of the cost and freight (CFR) price achieved.

Euro Manganese project

Euro Manganese Inc (ASX:EMN) (CVE:EMN) (OTCMKTS:EROMF) (FRA:E06) is also well-positioned to benefit from the strong manganese market outlook, with the company on track to complete a demonstration plant for its Chvaletice Manganese Project in the Czech Republic by mid-2021.

This plant will produce around 32 kilograms daily of high-purity electrolytic manganese metal (HPEMM), that can be converted into approximately 100 kilograms of dry crystalline high-purity manganese sulphate monohydrate (HPMSM).

The company is also on track to complete the Chvaletice feasibility study by the end of 2021 and today shares have been as much as 5% higher to 50 cents.

From 17.5 cents on October 2, shares have traded up to 61 cents on November 25, a new record high, and the company's market cap is approximately $92.6 million.

Strategically positioned

Demand for high-purity manganese products is growing rapidly, fuelled largely by the lithium-ion battery and electric vehicle markets, particularly in Europe where 100% of high-purity manganese products are imported.

EMN aims to be Europe’s only primary producer of ultra-high-purity electrolytic manganese metal, targeting production of ultra-high-purity electrolytic manganese metal (HPEMM) with specifications exceeding 99.9% manganese and ultra-high-purity manganese sulphate monohydrate (HPMSM) with a minimum manganese content of 32.34%, both of which exceed typical industry standards.

The company believes that its project’s location in the heart of Europe’s fast-growing EV production hub makes it a European and globally strategic asset.

Quick facts: Element 25 Ltd

Price: 1.79 AUD

ASX:E25
Market: ASX
Market Cap: $237.42 m
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Element 25 enjoying 'strong appetite' for output from its Butcherbird...

Element 25 Limited's (ASX:E25) (FRA:QFP) Justin Brown speaks to Proactive's Andrew Scott following its recent news that they've agreed key commercial terms to sell 50% of the manganese ore produced from the second stage of the Butcherbird Project development to Singapore-based Semeru Energy Ltd....

on 10/12/20

5 min read