Manganese, a Major Investment Growth Opportunity
Commodities / Metals & Mining Mar 16, 2011 - 01:51 PM GMTBy: The_Gold_Report
After working in the gold mining industry for many years, consultant Ken Reser has turned his attention to special opportunities in minerals of strategic importance to North America and Europe. In 2004, he developed an early interest in molybdenum as a vital resource, and then in 2007 became intensely interested in manganese as an element that would gain prominence due to the unique properties that make it irreplaceable in the manufacture of steel. Also, its growing importance in nascent battery technology will revolutionize development of electric and hybrid automobiles. In this exclusive interview with The Gold Report, Ken shares some thoughts on the significance of manganese and how investors might play growing demand for the metal.
The Gold Report: What makes manganese desirable in a commercial sense?
Ken Reser: It's been a U.S. Defense Department-designated strategic metal since World War II. It's a critical supply chain mineral for the steel and aluminum industries, as well as many other key industries. And there's a lot of new technology relating to manganese-rich (electrolytic manganese) lithium-ion batteries for electric and hybrid cars, as well as many other battery uses. It's a metal that's rapidly transitioning through new discoveries and new uses.
TGR: So, advances in technology continue to create new opportunities for use of this element?
KR: Exactly. Manganese raw ore is basically $0.18/lb., but electrolytic manganese metal (EMM)—pure manganese metal—is roughly $1.65/lb. It was $2/lb. and higher back in 2007–2008. The thing that people are missing in the manganese story has to do with North American domestic supply—there is none. . .period. Just as China is safeguarding its own domestic supply of rare earth elements (REEs), electrolytic manganese and various other minerals, North America should be doing the same.
North American end users are paying China because it controls over 97% of the world's supply of EMM. All the end users in North America, for example, are paying the transoceanic shipping costs of raw ore from places like Africa, Brazil, Australia and Russia. They're paying for finished products to be shipped across the oceans, and then China charges a 20% export tax and the U.S. charges a 14% import tax. So, it's not a very level playing field for North American end users. I might also mention that about 40 years ago, the United States produced more steel than the rest of the world's countries combined, but now it's in number five position. The world is growing rapidly, and you can't make steel without manganese and without steel production the world stops.
TGR: And, clearly steel is the primary current manganese growth driver?
KR: Yes, I believe the steel industry consumes roughly 47% of the electrolytic manganese supply, aluminum another 32% and electronics 14% and the rest in fertilizer and chemicals. A steel company metallurgist explained to me once that if you didn't put 10–20 lb. of manganese into each ton of steel (depending on the type of steel that you were forging), a 4 ft. x 8 ft. sheet of steel an inch thick dropped onto a cement floor would shatter like a piece of glass.
TGR: With development of new manganese-rich cathode technology for batteries, is it possible that those uses for manganese could outstrip its use for steel?
KR: Well, that's kind of forward-looking. I don't know if it would outstrip it, but it's definitely going to add a large component. Both the U.S. and Japan have the technology for these batteries, and EMM is a key component. I think actually 65% of the battery component is electrolytic manganese.
TGR: How far along is manganese battery technology now?
KR: The Chevrolet Volt is already utilizing this lithium-ion manganese rich battery at present. MIT is developing another battery technology for wind farms, and these are container-size batteries that are liquid. There is liquid antimony in the lower portion of this battery, and a proprietary catalyst in the middle. There is molten magnesium on top. They state that a farm of these batteries can supply the power for a small city. Of course, the power is generated by wind farms. I'm assuming that the same can be done with solar farms. Magnesium is another key critical metal that I have recently started writing about and of which the U.S. has only one small domestic supplier.
TGR: This is an issue of greater power capacity. Is that correct?
KR: Yes, lithium-ion manganese rich batteries can store power about five times longer. Because of the electrolytic manganese-rich cathode, they can use about 50% less batteries in EVs and thus gain a weight, as well as a capacity, advantage.
TGR: If you can store five times the amount of electricity, you can come closer to supplying a sustained baseload of power.
KR: Yes, exactly. This other magnesium battery by MIT is for wind farms. It is in early stages but it's something that I'm following quite closely.
TGR: Ken, the spot price of electrolytic manganese has doubled over the past five years. Still, even at $1.65/lb., it sounds plentiful and inexpensive to get out of the ground and process into the EMM.
KR: Well, manganese is a very common element so there's lots of it. There are various types of ores—carbonate and oxide ore. The carbonate ores are more expensive for extraction to pure metal. A mix of toxic chemicals is used, as well as multiple grinding and crushing processes that aren't used or needed in a clean (of impurities) oxide ore.
The key thing I focus on is the fact that the U.S. has no domestic supply and only three companies currently have manganese projects in North America; one is in Canada and two are in Arizona. In North America, this EMM can be produced much more cheaply by one of these companies than it can in China where electrolytic manganese costs roughly $1/lb. to produce. If it's sold at $1.65/lb. and taxed at 20%, and then the U.S. adds a 14% import tax, this leaves American end users at a disadvantage.
TGR: Well, there's clearly an arbitrage opportunity here and that would be to build production.
KR: Exactly.
TGR: So, how finite is the commodity?
KR: Manganese itself isn't that finite at all but oxide manganese ore deposits are much less common. Manganese is the fourth-most traded metal in the world. The overall manganese ore industry is growing at about 8% per year and electrolytic manganese demand has been growing at 26% each year for the last five—that shows the huge growing demand for it.
TGR: You said manganese is a strategic metal, which implies there are no substitutes for its uses.
KR: Yes, that's correct. There is no substitute for manganese in its many applications.
TGR: And you believe there will continue to be new uses for the metal?
KR: I do.
TGR: How do you quantify manganese dependence in the U.S. and the rest of North America?
KR: 100%, unequivocally 100%. The U.S. does some recycling, but that's marginal.
TGR: Is this dependence situation the same in the EU and other parts of Asia outside of China?
KR: Yes. Russia has its own ore deposits, and it's closer to China than North America. Shipping of ore and finished product would be less expensive from China to Russia than it would be from China to North America.
TGR: Is the manganese industry nationalized in China, or is it just nationalized by virtue of the export tax?
KR: It's both. The country has both nationalized as well as private operations. But the country's actually closing down a lot of the electrolytic manganese plants simply because of its pollution factors. I think we're going to see an amalgamation of some of these state-owned and private companies as we move forward.
TGR: This is a China story in so many ways. The country creates demand with its infrastructure buildout and is the great producer of manganese with a tremendously unfair advantage.
KR: Yes, we see China putting export limits on rare earths and many other minerals. It's just simple mathematics. The country wants that product for its own domestic use; so, it's not going to sell it to the rest of the world, and then find itself with a shortfall. The developing world is growing rapidly, and it isn't just China—it's also India, Brazil and Russia. The rest of the world wants to move into the 21st century and will move ahead regardless. Whether North America grows with it or not, that move ahead is going to place huge demands on a developing world for all kinds of different minerals.
TGR: Do you expect to see an exponential rise in the price of manganese over, say, the next decade?
KR: Oh, I believe the price of electrolytic manganese is definitely going to climb because there will be new discoveries and new uses, and China is running out of ore. There are just so many changes. I follow the area of patent applications quite closely and maybe once a month, or once every couple of months, there's a patent application for some new use of EMM.
TGR: What are the cash costs for manganese in North America?
KR: Well, the only company that has revealed a cash cost is American Manganese Inc. (TSX.V:AMY, OTCPK:AMYZF), and it's expecting an EMM cash cost of $0.44–$0.45/lb. In China, electrolytic manganese costs $1/lb. plus shipping costs, and then you have the 20% export tax and a 14% U.S. import tax.
TGR: Well, at a $1.65/lb. spot price, that would be a very generous margin for American Manganese.
KR: Yes, the company has a tremendous benefit there. According to the USGS, American Manganese's Arizona deposit at Artillery Peak is an oxide ore. It's a friable ore, which, in geological or mineralogical terms, means it's very soft and doesn't require multiple milling and grinding processes, roasting process or toxic chemicals. It also has a low water use with benign tailings. The key component to the low cost is a process perfected by Kemetco Research Inc., which is under patent application by American Manganese. The complete Kemetco Process can be viewed here.
TGR: There were two other North American companies.
KR: I've spoken with the management of Wildcat Silver Corp. (TSX.V:WS) and Buchans Minerals Corporation (TSX.V:BMC), and I think they both have very robust projects. Wildcat Silver, for example, has about 120 million ounces (Moz.) of silver and its deposit contains zinc, as well as a manganese grade of 7%–8%.
In the case of Buchans Minerals, I believe it has a 7% or 8% average grade of manganese, as well as 12% iron. Both companies' deposits appear very large. I suspect its costs will be quite a bit higher than American Manganese's Artillery Peak project, as it has multiple grinding and milling and separation processes that will require roasting and use of chemicals because they are not oxide ores and do contain byproduct minerals.
TGR: American Manganese is up 196% over the past three months. Wildcat Silver is up 130% and Buchans is up 31% over the same period. Is there still upside on these?
KR: Oh, I believe so. These companies have a long way to go, but American Manganese has already identified approximately 15 billion pounds (Blb.) of EMM with a lot more drill work yet to be done. Buchans Minerals is in the early stages of its discovery work. Wildcat Silver is primarily a silver deposit, and it just closed a $13 million private placement with Silver Wheaton Corp. (TSX:SLW; NYSE:SLW) that gives SLW first refusal on any rights Wildcat might want to sell from its Hermosa property in Arizona [formerly known as the Hardshell property]. Wildcat is primarily a silver play with a potential carbonate manganese byproduct.
TGR: Among these three companies, does one have any greater advantage over the others?
KR: Well, I would say yes. I've been consulting for American Manganese for some time now and I know what its project entails. It's much more advanced and it's open pit. The ore is amenable to sulfurous acid leaching and doesn't require the multiple grinding and crushing circuits, the roasting of ore or hazardous chemicals, therefore, it has benign tailings. So, you could say that it's a very environmentally friendly process. AMY's putting up a pilot mill this spring to bulk test the process. Also, it has a lot more drilling to do because it appears the company's 15 Blb. EMM resource can be greatly expanded. The company has recently contracted with Wardrop to complete an NI 43-101 prefeasibility study.
TGR: I have really enjoyed meeting with you. Thank you for taking the time with us today.
KR: Thank you for having me.
Ken Reser, an independent mining consultant, has over 20 years of direct involvement in the gold mining market industry, as well as having been a placer gold miner for a number of years in Yukon and British Columbia. Since 1990, he has had significant investor and public relations experience with junior base metal miners, gold, diamond and oil explorationists. Ken has consulted on gold exploration and prospecting projects in Ghana and Bolivia, as well as having staked his own extensive mineral claims in Lac De Gras, NWT, British Columbia and Yukon. He is a founding member of the Gold Anti-Trust Action Committee (GATA) and he is presently involved in an R&D consulting capacity for various Canadian junior mining companies. Since 2005, he has been actively writing mining editorials on various topics, including molybdenum, manganese, magnesium and gold. Ken can be contacted at 403-844-2914.
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DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
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