Ann: E25 HPMSM project selected for US$166M DoE Grant, page-112

One of the curious features of the HPMSM plant is that while Manganese is a critical input into the process, it may not actually be even the most expensive input into the process. It could even be the 5th largest cost item behind Reagents, G&A, Labour and Plant operations.

This means the economics of a HPMSM only have a weak connection to the price of Manganese ore. This has a further key impact, if E25 were to have a high-cost, low volume restart of Butcherbird generating just the volume of product needed for HPMSM plant (or plants), the HPMSM economics would still work. Within the operating cost estimate, Materials & Reagents are 41% of the cost but even within that 41%, the majority appears to be reagents. This is why a site location with price competitive reagents is critical and that is what E25 has secured.



So why might Manganese be under half of the Materials & Reagents price?
The 65,000tpa HPMSM plant needed approximately 72,000t of Manganese. If the price used was US$6/dmtu (including shipping) and a 32% grade was assumed the cost is US$192/t or US$13.8m/yr. The materials and reagents estimate was US$34.4m meaning Manganese ore would be perhaps 40% of the overall Materials & Reagents cost. The Manganese ore within the overall cost structure may be down near 15%. Manganese ore as a percent of the assumed revenue appears to be just under 10%.

While operationally ugly, it would appear financially feasible to set up the butcherbird operation as a high-cost operation supplying low volumes of ore using the existing onsite Butcherbird equipment. Even if you put a 50% Manganese price increase into the structure above and had a US$9/dmtu input material its "only" going to add $6.9m to the $84.1m overall operating cost. On a projected two-train operating cash flow of US$155m/yr a one-train operation could sustain this $6.9m hit for a few years and still generate strong cash flow.

This has two critical impacts that are not appreciated by the market:

• There is an ugly but possible pathway to implementing the HPMSM project that does not require the butcherbird upgrade to occur before the HPMSM plant is commissioned. While completing the Butcherbird upgrade first is the preferred option, there are alternatives including HPMSM operational profits funding this upgrade - as ironic as that sounds.
• If (when) E25 gets the HPMSM plant operation, a substantial disconnection from the underlying Manganese price will occur in its financials. The lack of Manganese cost within the HPMSM cost structure means HPMSM prices should not swing around the same way 44% ore does and a HPMSM plant still has good economics even if input ore prices are high to very high.

While the sensitivity analysis indicated a significant impact on the NPV from a nominal Mn price and a 10%, that was in relation to the HPMSM nominal price. Buried down the bottom was the sensitivity of the NPV to a 2% change in recovery rates. This provides a proxy for the impact of a 2% Manganese ore price change. Scaling this $5-6m by 10x, a 20% manganese ore price change might have NPV impacts similar to a 10% reagent price change. This aligns to the work above the HPMSM plant spends more on reagents than Manganese ore. While Manganese is obviously a critical input into HPMSM, its not the main cost item!!