Element 25 has inked its first non-binding off-take Memorandum of Understanding with OM Materials who is looking to purchase manganese concentrate from its Butcherbird project in the Pilbara. The project is hurtling towards production now and slated to churn out AUD$24.4m a year in free cash. The MoU will ultimately see between 50 and 100 per cent of the product spoken for over five years.
OM Materials is capped at $254m and over 25 years, has established itself as a global industry stalwart right across the process chain from mining and trading raw ore to smelting and marketing metal alloys.
A recent feasibility study at Element 25’s Butcherbird project showcased an extraordinarily low CAPEX figure of $15M and a ridiculous long mine life of 42 years at a pre-tax NPV - in real terms - of AUD$283M.
The internal rate of return at the project is equally impressive at 223 per cent.
Element 25 has an aggressive development schedule in development now and it is aiming for an initial ramp up as part of a staged CAPEX approach.
Manganese is an essential element in the steel-making process and it is used to strengthen steel.
Ore production of manganese is cornered by the Chinese and African markets, however with buyers in the EU, US, Korea and Japan now well aware of the risks associated with a single supply source, Element 25 has a long life deposit that looks like it should easily be able to muscle its way into the global market.
It is also a commodity with upward pressure on demand, with regulatory bodies in China gradually increasing the required manganese content in construction steel.
The increase in steel strength is in response to major engineering issues in buildings following devastating earthquakes.
According to the World Steel Association, Chinese steel production was the equivalent of a over 50 per cent of the globe’s capacity in 2018.
China’s domestic production of manganese is also set to decline as increasing environmental standards, falling ore quality and depletion of existing reserves puts pressure on its internal supply.
Element 25’s Butcherbird project sits just south of Newman in WA and straddles the main highway and the Goldfields gas pipeline. It boasts a maiden proved and probable ore reserve of 50.55 million tonnes grading 10.3 per cent manganese.
The Perth based company plans to kick off production this year at Butcherbird and with projected operating costs at Butcherbird placing it right near the bottom of the global production cost curve it should enjoy a competitive market advantage.
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