gippies should read-re mil

Date: May 05, 2005

Magnesium International Has To Make An Impact Now It Is Listed On AIM.

As far as can be ascertained Australian listed Magnesium International is going to take a dual listing on AIM today - Thursday - in almost total silence. Yes, it announced at the beginning of April that that was its intention in order to conform with AIM rules, but since then nothing. Agreed it is only a compliance listing and no money is being raised, but there are two very good reasons why the company should promote itself to potential investors in London. First, because it had a very checkered career in Australia thanks to the vagaries of the government of South Australia, competition from Australian Magnesium and indecision over where to site the magnesium plant which were all well documented on Minesite. Second, investors Down Under never cottoned onto the ultimate strength of the company once Thyssen Krupp became involved with an offtake agreement for 100 per cent of production.

The company is now a very different animal since it decided that the 516 million tonne magnesite resource in the North Flinders range of South Australia was not crucial to its future. It has now found a resource in the Northern Territory adequate to kick off the project and is seeking more deposits in Egypt and Saudi Arabia. Why these two countries? Because the smelter site is now going to be at the port of Sokhna in Egypt which is a whole lot nearer the operations of Thyssen Krupp and the Egyptian government is offering a number of very attractive incentives.

The important thing now is that investors in London understand just why this offtake agreement with ThyssenKrupp, the second largest European metals trader and the third largest European auto part maker, is key to the future of Magnesium International. Light dawned for Minews after talking to Peter Koken after a presentation Magnesium International gave in London a couple of years ago. He is a top man at ThyssenKrupp Metallurgie - Mitgleid der Geschaftsfuhrung at the time and probably even higher now - and he made the point that this company decided that it had to diversify away from its dependence on steel a few years ago.

Magnesium was pinpointed as an ideal enrichment to its metals portfolio and Mr Koken went out looking for an ideal project. It had to be on its way to produce top quality magnesium; it had to be using proven technology; and ThyssenKrupp was interested in an all or nothing deal. Magnesium International had become the exclusive global licensee of the electrolytic magnesium smelting technology developed by Dow Chemical: it was going to produce higher quality magnesium than the Chinese; and it had not come to any offtake agreement with another party at the time. No contest, it had to be Magnesium International. Offtake was agreed, but ThyssenKrupp bought no shares in the company. What it did was promise that it would help with the equity funding on which it has to embark, as well as lining up banks for the development finance. The funding is therefore done and dusted and Peter Koken exerts his influence on the board quietly and effectively, though he is not a director.

The present position is that MAN Ferrostaal won the contract for engineering, procurement and construction and is now working closely with three executives from Magnesium International and three ex-Dow consultants at its headquarters at Essen. This company is another of Germany’s largest and most highly respected industrial groups and its name will count heavily in the bankability stakes for what will be a lump sum, fixed price contract on a turn key basis. The bankable feasibility study is underway and should be finished by the end of the year. The 88,000 tonne smelter will be constructed in two modules at a total cost estimated at US$580 million. The first of these will have a capacity of 43,000 tonnes and should be ready in 2008, and the second three years later.

The company is already in touch with potential debt providers and will appoint its adviser shortly. What it now has to do is raise its profile and get the equity to a more realistic level in order to limit dilution at the time of the equity raising. Here the broker, Evolution, has a conflict of interest as its work will be made that much easier if the shares look very cheap. Magnesium International has said that it will focus on European markets for the majority of the final equity funding required for the smelter project so it is none too soon to start making presentations in London, Paris, Switzerland and Germany where it is also listed. The directors are mostly big company men who are not used to waving the flag. They must start today.