Barry FitzGerald: Why wait for the manganese tide to turn when you can just ride it downstream?
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The junior manganese explorers and developers on the ASX have been doing it tough this year.
No surprise in that as prices in the June half-year plunged 23% for manganese ore, and 48% for manganese alloys.
Not even the ongoing war in Ukraine (the seventh biggest producer) and the recent military coup in Gabon (secondd biggest producer) have been able to turn the tide.
The bigger issues at the moment are the softness in the global steelmaker market and manganese being in slight over-supply, assuming Gabon’s industry continues on its merry way as seems likely because military leaders tend to like the cash from key industries as much as civilian governments.
The main use of manganese is in providing strength and wear resistance in steel. Only a dollop is needed but the great thing is that another dollop has to be added when steel is recycled, with recycling rates taken off globally as part of the green push.
But as Stockheaders well know, there is the exciting growing use of manganese in batteries for the electrical vehicle revolution.
It is something that has got the $15.5 billion South32 excited. It is one of the world’s biggest manganese producers from Groote Eylandt and South Africa. Earnings from the operations in June year were down on the lower prices but still accounted for 19% of group earnings.
It is a business South32 has earmarked for growth, not in supplying the steel alloys sector, but for the fast-growing battery-grade market by developing the Clark deposit in Arizona, one that will get the full benefits of the Inflation Reduction Act support for “critical’’ materials.
South32 boss Graham Kerr reckons manganese-rich battery chemistries could capture 30% of the market by 2030, and more than 50% by 2040 as they provide substantial cost and performance benefits.
In the currently favoured LFP and NCM-622 batteries, there is either no manganese (LFP) or 17% by mass (NCM-622). In the new generation of battery chemistries of LMFP and NMx, manganese accounts for as much as 65% and 69% of the mass.
(Lithium bugs can breathe easy as the lithium mass sits in a pretty much unchanged range of 6% to 11% across the chemistries.)
All that has got to be good news for the ASX manganese juniors.
And it has to be said they are positioning themselves just as South32 is to capitalise on the rise of manganese-rich battery chemistries, as well as feeding into the ongoing demand from the steel industry.
It can also be said that because the share prices of the manganese juniors have taken a hit in response to transitory manganese price weakness, they are now better value than they were back in January.
Garimpeiro can’t cover off on all of them so this week he is focussing on one where there was strong newsflow during the week – Firebird Metals (ASX:FRB).
It was trading at 14c on Friday, down from 16c at the start of the year. It has just released an updated scoping study into the development of its flagship Oakover project near Newman in the Pilbara.
The study found that a $123m project producing 1.2Mt of manganese concentrate (30-32% manganese) annually could have an internal rate of return of 73%, with capital payback possible in 16 months.
The net present value (8% discount rate) was put at $740m.
That is kind of interesting given that at its last sale price, Firebird was valued by the market at just $10.3m. When you think about, if Firebird declared tomorrow it was adding lithium exploration to its portfolio, its market cap would likely shoot off to $20m.
(Garimpeiro is not suggesting the lithium angle at all. He is just making the point that manganese company valuations are in the dumps at the moment. No need to write in.)
It is nothing that a recovery in the manganese price won’t fix as the enormity of the supply challenge to meet the forecast boom in demand from the battery sector takes hold, with some forecasters predicting demand from the battery sector could outstrip that from steel sector by 2040.
None of that is lost on Firebird. It followed up the release of its updated scoping study on Wednesday with a downstream growth strategy to become a producer of high-purity manganese sulphate in China for use in LMFP batteries.
It also has an “aspiration’’ to eventually become a producer of cathodes for LMFP batteries.
The choice of China as the location for its downstream ambitions is an acknowledgment that the country is going to be hard to catch in all things to do with electric vehicles.
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