Getting Acquainted with Element 25’s target Commodity Manganese: Market Demand and Outlook

Mineral explorer, Element 25 Limited (ASX:E25) is currently focussed on advancing its flagship Butcherbird Manganese Project (100%-owned), located in southern Pilbara Region of Western Australia (a Tier-1 Mining jurisdiction globally) having a world class resource with a great infrastructure endowment in the vicinity.

Despite the backdrop of an uncertain operating environment and restricted operations due to novel 2019 coronavirus (Covid-19) pandemic, the Company has been able to make some excellent development across all of its work streams such as progressing the Pre-Feasibility Study (PFS) for Butcherbird High Purity Manganese Project, developing plans for a potential start of production via low capex manganese concentrate export operation and evaluation of potential offtake agreements.

The Company is thrilled to have identified opportunity for a low capital, accelerated cashflow start up for Stage 1 development of the Butcherbird Project while the recent Beneficiation test work including crushing, screening, wet scrubbing and ore sorting have produced a commercially marketable 33%Mn concentrate product. In addition, the test work has also enhanced the flowsheet for the larger scale high purity manganese Stage 2 development strategy to produce Electrolytic Manganese Metal (EMM) for steel industry and High Purity Manganese Sulphate Monohydrate (HPMSM) for the lithium ion batteries that will drive the Electric Vehicle (EV) transition.

To have an eye over the Company’s key project related activities, Read- Manganese Focussed Element 25 Achieves Excellent Progress Across All Work Streams In Q3FY20.

High Purity Manganese – In Focus

High Purity manganese is a crystalline salt with only 32% manganese content and very low impurity levels.

Applications Under Consideration

Electrolytic Manganese Metal (EMM): This is Element 25’s primary product that is well understood and bankable. EMM is used in series 200 SS and specialty alloys and has a large market with demand of ~ 1.8 Million tonnes or ~USD 4 Billion annually. Thus, EMM has an established demand with steady growth while it would be feasible to identify offtake options for this product as it is easy to market with a predictable pricing of USD 2K-USD 3K per tonne. Besides, China does not produce ore domestically and the ore sourced from Africa boasts of high costs.

Battery Grade Manganese Sulphate: This is Element 25’s secondary product with a new yet fast-growing market, presenting a huge blue-sky upside potential. This product is used in fertilisers and new energy NMC and LNMO batteries. Although, the market is currently small with the demand of ~0.1 Million tonnes or ~USD 0.2 Billion per annuum and expected to unfold ten times to 2030. HPMSM is produced by dissolving EMM and Element 25 is aiming to be the lowest cost producer worldwide with due diligence ongoing.

Market Outlook

As per Roskill Commissioned Manganese Market Report October 2019, the established demand for EMM from traditional steel markets is expected to grow at around 4% per annuum as there is expanding demand from consumers outside China wanting alternative supply.

Source: Investor Presentation – AGM 20 November 2019

On the other hand, there is a rapidly growing demand and price premiums for battery grade sulphate that has the potential to accelerate as the electric vehicle thematic takes hold.

Source: Investor Presentation – AGM 20 November 2019

Another key factor to be considered is that the producers of Manganese ore in China are struggling to control costs due to ageing infrastructure, depletion of local ore resources, labour intensive processes, difficulty in sourcing labour and costs, rising power costs, complex logistics and waste disposal plus other environmental issues. This provides a competitive edge to actively aspiring producers like Element 25 to capitalise on the opportunity and fill up the supply gaps.

Element 25 is targeting to use a breakthrough technology for clean processing developed by CSIRO that would utilise less energy and cause lower emissions. This is likely to include an energy mix comprising 50% wind and solar plus 50% gas, halving emissions and reducing cost. The southern Pilbara region in Australia has good solar and wind, thus an ideal region for hybrid generation. Besides, with a long term PPA, renewables are now significantly cheaper than gas generation.

Price Outlook

Manganese prices had decreased significantly over the last year, averaging USD 4.00 (per dmtu, Metal Bulletin 37% FOB Port Elizabeth) (FY2019: USD 6.00). Prices took a sharp decline in the third quarter of the financial year, mainly relating to US-China trade dispute, then showing some signs of recovery in January 2020. However, due to the Covid-19 pandemic, prices softened slightly once again towards the end of the financial year.

The E25 stock settled the day’s trade on 7 May 2020 at $ 0.200. E25 has generated positive returns of 17.65% Year-to-date, 15% in the last three months and 42.86% in the last one month.