Expert view: manganese is looking very hot right now – here’s why
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Terra Capital recently made its first investment in an ASX-listed manganese stock.
Manganese is the fourth-most-traded metal in the world. Only aluminium, iron ore and copper are more widely used.
About 90 per cent of manganese goes into steel-making, but it’s increasingly used in next-generation battery and power storage applications.
Stockhead spoke to Terra Capital chief investment officer Jeremy Bond to find out why manganese is so attractive right now.
Terra recently took a stake in Euro Manganese (ASX:EMN). Why do you see manganese as a good opportunity at the moment?
First of all, we didn’t have any other exposure to that commodity and we like it for a few reasons.
The price is underpinned through the steel demand, which is its traditional use.
But there’s obviously blue sky in its use in batteries, particularly the NMC (nickel-manganese-cobalt) battery, which we think is going to be the battery of choice going forward and that really can drive a particular part of the manganese market.
You obviously have to be able to produce battery grade manganese sulphate monohydrate (MSM), which not many of the deposits globally can do and we think that Euro Manganese will be able to produce that.
Euro Manganese has a large asset, it’s in a relatively good jurisdiction and it’s near to a lot of the car makers as well.
It’s set right in Europe, which I think is a point of differentiation. Most of the manganese comes out of China, South Africa and Australia.
So having something that could potentially produce battery grade MSM in the heart of Europe is exciting.
What other investment opportunities do you see in the manganese space?
That’s the only investment we have in that space. We’ve looked at a couple of others.
Obviously Jupiter Mines (ASX:JMS) listed earlier this year. We’ve seen some smaller things like Rolek Resources.
(Rolek is the formerly named Shaw River Manganese (ASX:SRR), which is rebranding after it struck a deal to expand into other commodities including lithium, nickel and cobalt.)
There are not many ways you can play it as a small or mid cap investor. If you look at it purely in the Australian context, most of the good manganese assets are held within the majors.
Given there aren’t a lot of ASX-listed small caps involved in manganese, do you see the potential for more players to enter the market?
Potentially. If we’re looking at the battery side of things, there wasn’t too many lithium companies three years ago and you saw a lot of lithium companies emerge, there wasn’t many cobalt companies and you saw some of them emerge.
So it wouldn’t be surprising.
I think it’s a relatively plentiful commodity, but not many of those deposits globally will end up in batteries. Most of those deposits will be steel only.
So we wanted to find an asset that could be used in steel production, but also have the blue sky of being able to be used in batteries.
Terra Capital has stakes in several other small cap resources companies. How does the company decide what makes a good investment?
In the resource market, we’re looking at management teams being a pretty important factor. So the history of those teams, the success of them building mines, their success in mergers and acquisitions.
If we’re looking at production assets, then we’re looking for low-cost quartile, the geology to be relatively simple and we want to see good margins. And scale, I think you want to have a good mine life.
On pre-production assets, we’re looking for an asset that is scalable — something that a major would potentially find interesting at some point.
Again, the metallurgy and the orebody are really important because the metallurgy obviously feeds into the recoveries and the cost of processing.
The country is an important consideration from a political risk perspective — taxes and royalties and obviously tenure — and then it feeds into other things like infrastructure.
So it’s why we always spend a lot of time going out to site because you get a much better feel for it when you’re there rather than looking at a presentation, which can sometimes be a bit misleading.
Which countries would you stay away from?
First and foremost, we prefer to invest in first world jurisdictions. I think 70 per cent of the underlying assets in the companies that we hold are either in Australia, Canada or the US.
We have some investments in Africa, Asia and South America.
But some places are harder than others. China is pretty hard, Russia is pretty hard, some of the southeast Asian countries are quite hard and some of the African countries are obviously pretty hard too.
We don’t have anything in the mandate per se, but if we can find what we want in a first world country then that would always be the preference.
How much cash do you have to invest and are you raising more?
We have two funds. One is a resource fund, that’s about $85 million and then we have an ethical fund which doesn’t do any resources and that’s $40 million.
We are setting up an offshore fund that will invest in resources as well. So that will be launched next month.
How much are you trying to raise for the new fund?
I think to start with if we could get $30 to $50 million and then we’ll go from there, but the capacity for both funds is $300 million.
Jeremy Bond previously worked as an analyst for a resources-focused fund run by RAB Capital.
Prior to joining RAB in 2007, he was an associate at Azure Capital, a Perth-based boutique investment bank.
At Azure, Mr Bond worked on numerous merger and acquisitions, and was involved in a number of capital raisings in the small cap sector.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.