Manganese – the third electric vehicle metal no one is talking about
A Brief Manganese Primer
• Manganese is a critical and irreplaceable element used in steel production;
• The steel industry is poised to continue growing, providing a steady source of demand for manganese;
• Significant additional upside will come from clean-energy applications;
• Vertically-integrated companies will be primary drivers of the forward momentum in the manganese industry, which at this point is concentrated and in need of disruption.
Lithium and cobalt have been on an absolute tear, riding the wave of Tesla and the broader electric revolution. There is another metal, however, used widely as a battery component that has received less notice from the markets. That metal is manganese (Mn), a chemical element that is normally found together with iron.
Since the beginning of 2016, cobalt’s price has jumped 120%, lithium has moved up 77%, and manganese has recorded a 42% gain. While all three metals have seen their prices rise recently, it appears that manganese has been outshined by its two fellow EV metal counterparts. We believe this situation will change quickly, as demand for manganese is set to outpace supply, especially for higher-grade materials found only in specific corners of the globe.
Introduction – Manganese Is Critical
Manganese is an essential ingredient in steel. And according to the US Geological Survey’s (USGS) Mineral Resources Program, the United States is completely dependent on manganese imports; it has no production facilities of its own. The US needs about 500,000 tons (1.1 billion pounds) of manganese per year, the majority of which is consumed by the steel industry.
Acutely aware of this situation, and the fact that most of the world’s manganese is produced by just a few countries (some of which are risky jurisdictions), the USGS has deemed manganese a “critical mineral.” A critical mineral is one defined as being essential to the economy, as well as being at significant risk of incurring supply interruptions. The USGS has also singled out manganese because of its importance due to its increasing use in emerging technologies.
Solid Growth In Demand
In steel production, manganese serves the important function of removing oxygen and sulphur when iron ore is converted into iron. It is also used as an alloy that increases both the strength and flexibility of steel. In ore production, about 30% of the manganese is used to refine ore and about 70% is used as an alloy in the final product.
Manganese is not on the radar of many investors, but it is widely used in metallurgy. In fact, it is the fourth most commonly used metal by tonnage – after iron, aluminum, and copper. And during the past ten years, the world has generally produced increasing amounts of steel every year.
Between now and 2020, the International Manganese Institute projects that the global steel industry will continue growing at a clip of about 2% annually.
The United States is expected to lead the way in 2017, with a projected 4.4% increase in steel production. This number is expected to surge even further as President Trump turns his attention towards pushing legislation for a $1 trillion infrastructure plan.
In addition to the steel industry, manganese is also utilized in animal feed and fertilizers, two sectors with demand that will continue to grow in concert with the world’s population.
Moving forward, we see significant growth in the manganese market due to its applications in clean energy. More specifically, we anticipate the growing use of nickel-metal hydride (NiMH) electric vehicle batteries and lithium-ion (Li-ion) batteries to be major catalysts for manganese demand. NiMH batteries are predominantly used in hybrid vehicles, including the Toyota Prius. The Li-ion battery, of course, takes center-stage due to Tesla’s notoriety and lofty production targets.
The newest up-and-coming technology to use manganese is the so-called lithiated manganese dioxide (LMD) battery. A typical LMD battery uses 61% of manganese in its mix and only 4% lithium. LMDs have numerous benefits, including providing higher power output, thermal stability, and improved safety compared to regular lithium-ion batteries.
LMDs are already in production, and are currently used in electric cars like the Chevy Volt and Nissan Leaf. These cheaper electric cars, as opposed to the narrower luxury-segment that Tesla operates in, should be a significant part of the budding clean energy revolution.
Finally, there is a game-changing application of manganese worth mentioning: off-the-grid power. Tesla and its Powerwall batteries are breaking ground here, and the market is only poised to grow.
In summation, there are several drivers that should boost manganese demand, both traditional and cutting edge.
Manganese will continue to be a key element in steel production, and the industry should continue to grow at a steady pace. Steel production will ensure that manganese remains as one of the most widely used elements in the world. On the technology side, electric vehicles, off-the-grid power systems and other energy storage applications will require significant amounts of high-quality manganese.
Risky Business On The Supply Side
Most manganese production globally is concentrated in four countries: Australia, China, Gabon, and South Africa. 90% of the world’s manganese reserves are found in these four countries, along with Brazil and Ukraine. Remarkably, nearly 70% of global manganese reserves are contained in the Kalahari District of South Africa.
South Africa’s deposits tend to be high-grade. Australia, Gabon, and Brazil, however, feature even higher grade deposits. This bodes well for the explorers and developers operating in these countries.
In the United States, there has not been any manganese mining activity since 1970. There are a few areas where it is possible to find manganese-enriched rocks (Maine and Minnesota), but the grades are substantially lower than what is available around the globe, so mining manganese in the United States does not make economic sense. As a result, the U.S. imports all of its manganese.
61% of the United States’ manganese imports come from Gabon. Australia is the second-largest provider of manganese to the U.S., with 21% of the total. South Africa (7%) and Brazil (5%) are the third and the fourth largest manganese exporters to the United States.
China, meanwhile, is the world’s number two producer of manganese and also one of its largest consumers. Demand for imported manganese ore in China more than doubled between 2006 and 2016. As of 2016, almost two-thirds (62%) of manganese ore in China was imported. The gulf between manganese production and consumption in China has been widening since 2001.
China, like the United States, imports most of its manganese from South Africa, followed by Australia, Gabon, and Ghana.
Unlike steel, where demand is notoriously steady, the supply of manganese is declining. In 2016, the USGS estimated that the world produced 8.6% less manganese than in 2015.
This is one of the imbalances that resulted in the recent upward price action in manganese. The price of manganese has risen over 42% since the beginning of 2016.
The estimated demand for manganese in 2022 is forecasted to reach 28.2 million metric tonnes. Compare this to historical rates of manganese production, which peaked in 2014 at 18.0 million MT. Clearly, the widening gap between supply and demand in the manganese space should lead to a healthy price increase over the next few years. We believe that one manganese explorer, in particular, is poised to take advantage of this dynamic, and its management team already has one exit under their belt in the manganese sector.
Maxtech Ventures Inc. (CNSX:MVT, FRA:M1NA, OTCMKTS:MTEHF)
Current Price: C$0.60
Shares Outstanding: 48.7 million
Market Capitalization: C$29.2 million
52-Week Range: C$0.12-C$0.63
Cash: ~C$0.6 million
Total Liabilities: ~C$0.1 million
Maxtech Ventures is advancing work on several high-grade manganese projects in Brazil. All of the company’s projects are located in Brazil, but Maxtech is focused on seizing the opportunity to become a global supplier, with customers in Europe, North America, and Asia.
The company’s aim to sell manganese products globally rests on the existence of high-quality infrastructure in the regions where it operates. Looking at this map, it may appear that the company’s projects are located in remote areas, however, the reality is that Maxtech has access to multiple high-volume commercial river ports. Additionally, a major regional road is slated to be constructed within a couple of years.
Maxtech is focused on the Brazilian region of Mato Grosso. The area has seen much less exploration and production than the neighboring Rondonia region; nonetheless, both regions have similar geology. Between Mato Grosso and Rondonia, known manganese mineralization extends across a belt of at least 250 kilometers. Most of the mineralization lies at surface, with reported grades reaching 54% or higher. These high-grade veins extend to over 80 meters in depth.
Since so much of the material is available at surface, mining it is not an expensive enterprise. The technical flow sheet for the production of manganese in the Eastern Rondonia/Western Mato Grosso region is very simple.
(Source: Maxtech Ventures)
This technical simplicity allows for cost control that is not possible for more complex methods of production. It is also one of the reasons why Maxtech believes that it can successfully compete in the global manganese market. Low production costs and increasing prices should allow Maxtech to generate healthy margins in the future.
Lastly, Mato Grosso is an area known for soybean production, and manganese-based fertilizers are widely used there. It can only be to Maxtech’s benefit to operate in close proximity to prospective end-users of its product.
Exploration costs for Maxtech should be quite modest, since most of the manganese in this region of Brazil is located at surface. It is rather a matter of scope, not depth, that Maxtech needs to worry about.
With this in mind, Maxtech recently announced an exploration program. The program will include early-stage activities, such as prospecting, mapping, geochemical soil surveys, and ground-based geochemical surveys.
At Mato Grosso, there are two types of manganese mineralization – cobbles/clasts and hydrothermal veins. Maxtech will need to calibrate its exploration methods to study and understand both types of mineralization.
Most of the program can be completed using relatively inexpensive methods, including hand-dug pits, mobile auger drills, and trenching.
For us, it means that the company will be able to advance its understanding of Mato Grosso geology quickly and efficiently. When preliminary targets are identified, Maxtech will follow-up its green field exploration activities with traditional core drilling.
Maxtech is also very active on the acquisition front. Earlier in March, the company signed a Letter of Intent (LOI) to form a joint venture partnership to develop the Buriturama Mine in the State of Bahia, Brazil with Plantiminas Empreendimentos Rurais Ltda.
The mine has existing access to railway, ports, and other infrastructure. The aim is to advance the Buriturama towards mining with a goal of generating 10,000 tonnes per month in production. The project already has a trial mining license for the processing of up to 6,000 tonnes of manganese mineralization. An application has already been submitted for a Lavra license, which would provide for unlimited mining activities at Buriturama.
One of the key features of Buriturama is its proximity to Mina do Azul, operated by Vale SA. Mina do Azul has manganese concentrations in the range of 40% and higher. Buriturama’s historical records (non-NI 43-101 compliant) indicate that its ore contains similar grades. Between regional-scale exploration programs and advancing Buriturama to production, Maxtech is engaged in building a vertically integrated manganese producer.
The company is also keenly aware of the multiple markets that its manganese products could serve. From local agriculture companies, which need manganese fertilizers to produce soy, to the global high-technology battery market, Maxtech has the potential to sell its production far and wide.
Vision – Replicating A Proven Model
This vision comes from the company’s seasoned management team. Maxtech is led by Mr. Peter Wilson, a financier with over $300 million in equity and debt financings under his belt. He has been involved in capital raising, corporate development, and management for over 20 years.
On the technical side, Maxtech’s project acquisition and exploration activities are overseen by the same team behind Cancana Resources.
Cancana’s flagship was the BMC Project, located in state the of Rondonia. As part of a joint venture on the project, Cancana was partnered with Ferrometals, an investment vehicle for the resource-focused private equity fund, The Sentient Group, which at the time had US$2.7 billion in assets under management. Cancana was eventually acquired by Ferrometals and in turn listed as Meridian Mining (CVE:MNO). Meridian Mining now boasts a market cap approaching CAD $100 million.
When the acquisition closed in November 2016, the original team from Cancana went right back to work, looking to replicate the same model.
With the experience that its CEO brings to the negotiating table, along with the expertise of its technical team in Brazil, there is good reason to believe that Maxtech can transition from explorer into producer and create substantial value for its shareholders.
Capital – Ready To Produce
Maxtech’s impending exploration program is a direct consequence of a financing that management arranged earlier in 2017. This $607,500 capital infusion is part of a larger financing effort that the company is undertaking. The plan is to spend most of the funds raised on its Brazil operations, plant engineering, and the preparation of a NI 43-101 report.
Maxtech’s financing push is backed by positive economic projections for the company’s near-term producing properties. The company forecasts that it can start production later in 2017 at a rate of 6,000 metric tons, moving to production of 26,500 tonnes by 2018, and ramping up to 67,000 tonnes by the end of the decade.
The company is close to reaching production stage, which will help it afford to continue purchasing prospective claims and projects in Brazil.
As a result of the company’s well-outlined focus and position in the middle of a manganese renaissance, we anticipate increased investor interest and significant share price upside. We expect continued momentum in the next twelve to eighteen months in response to hitting several of its key milestones.