LMG Project Progress and Current Scope Introduction The...

LMG Project Progress and Current Scope


Introduction


The following is a collation of information I have gathered and endeavoured to systematically break down. There is some repeat compared to my previous posts but also a great deal of further information and personal opinion. The report is lengthy (3750 words) so you may like to skim read. It is well known that I am a tremendous advocate. I have tried very hard not to be too presumptuous or pumping the stock

The purpose of this report is to aid shareholders in understanding the significant progress made in the last twelve months particularly. In addition, I hope you may regard it as quick reference in finding information that is scattered over many reports, investor presentations and websites. I have started a new thread so that if you find it useful, it will be easy to find.


Primary Business Objectives

• Latrobe Magnesium is developing a magnesium production plant in Victoria's Latrobe Valley using its world first patented extraction process.
• LMG intends to extract and sell magnesium metal and cementitious material from Yallourn ash, which is currently a waste stream from brown coal power generation.
• LMG plans to sell the refined magnesium under long-term contracts to USA and Japanese customers.
• LMG project is at the forefront of environmental benefit – by recycling power plant waste, avoiding landfill and being a Zero to low CO2 emitter. LMG adopts the principles of an industrial ecology system.
• LMG aim to become a beacon of change within the industry, setting an example of true ESG credentials.

“ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability. Once enough data has been acquired on these three metrics, they can be integrated into the investment process when deciding what equities or bonds to buy.”

https://www.robeco.com/au/key-strengths/sustainable-investing/glossary/esg-definition.html


Magnesium’s role in the low-carbon economy


“Magnesium’s reputation for being ‘the green metal’ is bolstered by its 100% recyclability, though how green it really depends on the method of production, which as we have seen is currently very carbon-intensive indeed. But carbon emissions are also the reason for the current interest in magnesium. The metal, a critical component of modern cars, is prized for its carbon-reducing properties – a lightweight vehicle requires less energy to run. It’s the low-hanging fruit on the path to a lower-emissions car industry, before you factor in which fuel will power that vehicle.”

“When President Obama instituted a push to reduce automotive pollution in 2009, attention turned to magnesium’s role in driving down industry emissions. “The more steel and aluminium parts we can replace with magnesium parts, the more fuel-efficient the car becomes,” says Latrobe Magnesium CEO David Paterson. In the continued push towards lightweight, durable cars, the car industry, currently a consumer of 37% of the world’s magnesium output, will only become hungrier for pure magnesium. With China’s dominant role in production, there are obvious longer-term risks in store at a time when there is a growing need for magnesium. Many markets are looking to diversify their supply chains.”


Testing

• 2014 LMG completed the RWE Concept Study which concluded the German project to be economically viable and worthy of further development.
• 2017 LMG conducted a number of successful small-scale tests using its unique hydromet process on the RWE fly ash producing magnesium and supplementary cementitious material (SCM). From this work, LMG was able to ascertain that the RWE fly ash delivered the best economic outcome of any of the fly ashes tested by LMG to date
• 2018 LMG has been working with Monash University, which has been performing laboratory scale tests on the Yallourn fly ash.
• 2019 Redesigning, testing and evaluating of the fast cycle vertical retort furnace
• 2021 Continuing test work and completing value engineering exercise with CSIRO, Melbourne - magnesium & smelter processing.

Patents and Process Ownership

• 2013 The Australian patent was issued for a period of 20 years
• 2016 The granting of the hydromet patents in the USA and China;
• 2016 100% process ownership by Magnesium Investments Pty Ltd, a 100% owned subsidiary of LMG.
• 2016 LMG has the exclusive worldwide marketing rights for the commercialisation of this technology.
• 2017 Granting of the hydromet patents in Indonesia
• 2018 A patent for all countries in the European Union was granted
• 2019 Granting of the hydromet patents in India

(It's pretty hard to distribute licences if you do not have a patent)

Project Consultants (2019)

• Jim Siemon - Project Director - Chemical engineer and employed by Rio Tinto, Zinifex, Nystar.
• CSIRO, Melbourne - magnesium & smelter processing
• Clark & Marron – magnesium industry experts
• Mincore – feasibility study and process engineering
• GHD – environmental and approval consultants
• Bureau Veritas Laboratories – Perth - alkali and acid hydromet processes
• ALS Laboratories, Perth – acid hydromet process
• BG&E Material Technologies – cement advisers

Feed Stock

• 2020 LMG have a number of opportunities to license their IP to various brown coal (RWE Power & EP Coal) and ferro nickel producers worldwide."
• 2018 MoU with Energy Australia Yallourn for fly ash supply to Latrobe Valley magnesium plant.
• During the next 20 years LMG is hopeful that the Hazelwood HAP4 ash dam may become available to
• be processed through their expanded plant. Should this not become available LMG has identified an
• alternative supply of feedstock that could be processed by its expanded plant.
• 2022 Overseas ferro nickel slag supplier for the 100,000tpa plant? Who and where?

Products

Magnesium is a light and strong ‘green metal’ and has the best high strength to-weight ratio of all common structural metals, being 75% lighter than steel and 33% lighter than aluminium & titanium. In 2020, world Magnesium production was ~ 1 million tonnes, of which China supplies ~85% of this. Of this 1 million, approximately 440,000tpa is exported mainly to the US, Japan & the EU.

LMG’s production process involves the extraction of magnesium metal from magnesium rich resources and produces valuable by-products as a result of its innovative process. The by-products that will be produce from the process utilised at the Latrobe Valley Project include, Supplementary Cementitious Material, amorphous silica, char, iron oxide and calcium carbonate. Nearly 100% of the fly ash resource is repurposed into valuable products resulting in little to no waste.

Victoria has no local supplier of SCM and traditionally imports 100% of their 250,000 to 300,000tpa use. The LMG process of combined hydromet / thermal reduction produces 4.1 tonnes of Supplementary Cementitious Material (SCM) per tonne of Mg from Yallourn fly ash.


PFS and BFS

• 2017 Completing its preliminary feasibility study
• 2019 LMG completed its Yallourn feasibility study using Yallourn fly ash
• 2021 The surplus working capital of $2M will be used to assist with the funding of the feasibility studies for the 10,000tpa plant in the Latrobe Valley and the 100,000tpa plant overseas.
• 2022 LMG states it will complete a prefeasibility study on a 100,000tpa magnesium plant using ferro nickel slag within 2022.

EPA Approval and other approvals.

• 2018 The Group’s operations will be subject to normal State and Federal Environmental Regulations. There were no breaches of these regulations during the year or to the date of this report.
• 2020, GHD (a consulting engineering company) has been working with LMG to assess the potential impact on the local area in terms of air emissions, road traffic and noise levels.
• 2020 Latrobe City Council issued the planning permit for LMG’s plant
• 2020 Application to the EPA for the project approval was awarded
• 2020 LMG has committed to hold two further Community briefings through the development of the project and report on the emissions and other matters. LMG believes in having a social licence with the Community in which it operates.

Infrastructure, plant and equipment

• 2018 A prototype retort, furnace and all necessary ancillary equipment has been designed, built and installed at a CSIRO facility in Melbourne.
• 2021 Commencing detailed engineering and design of the demonstration plant, and the tendering of the spray roaster, the long lead time equipment item
• 2021 Exercised option to lease 320 Tramway Road, Hazelwood North, the site has been surveyed and early upgrade work will be tendered
• 2021 Awarded Engineering, Procurement and Construction Management Contract to construct the demonstration plant.
• 2021 Commenced design and engineering, value engineering studies and the tender of the spray roaster – the long lead time item of equipment
• 2021 EPCM officially awarded to Mincore, allowing for further detailed engineering of the demonstration plant to begin.
• 2021 LMG buy 320 Tramway Road from DG & J Di Fabrizio Steel Fabrications Pty Ltd for its fixed price of $4.5M. The Di Fabrizzio family has accepted that the purchase consideration will be paid $2.25M in cash and $2.25M in LMG shares at 10 cents being 22.5 million LMG shares.
• The plant will be located at the centre of Victoria’s coal power generation precinct providing direct and constant access to feedstock. LMG has secured an 11-hectare site with 14,000 m² of buildings.
• 2022 Mincore and LMG have awarded early site works for fencing, surveying, the reinstatement of electrical works and the refurbishment of the administration building at 320 Tramway Road and all these works have now been completed.
• 2022 Mincore has gone to the market and is tendering the smelter works to five pre-approved companies.
• 2022 Mincore has been supporting LMG alongside CSIRO as we test new technologies to improve the existing processes, build prototypes and complete plant trial runs varying operating parameters and conditions.

Offtakes and Distribution

• 2016 LMG signed a Memorandum of Understanding with a Japan-based company, Advanced Material Japan Corporation (AMJC), committing to purchase magnesium from the LMG planned production facility in Morwell Victoria. AMJC is the largest titanium and magnesium trading house in Tokyo.
• 2016 LMG signed a MoU with RWE Power AG to continue to develop a magnesium plant capable of producing approximately 30,000 tonnes per annum of magnesium from brown coal fly ash from its Hambach mine near Cologne, Germany.
• 2017 LMG signed an American distribution agreement with Metal Exchange Corporation (MEC) to sell its magnesium into North, Central and South America and the Caribbean in the aluminium market. MEC has committed to purchase a minimum tonnage of magnesium a year from LMG’s planned production facility in Morwell Victoria. The deal will deliver excellent prices to LMG due to an anti-dumping duty payable on Chinese imports into US markets.
• 2017, LMG announced that they had signed a term sheet with RWE Power AG that detailed how both parties will proceed with the development of a new Germany-based magnesium plant.
• 2021 LMG plans to sell the refined magnesium under long-term contracts to USA and Japanese customers. Currently, Australia imports 100% of the 8,000 tonnes annually consumed.
• 2021 LMG has a signed binding offtake agreement with Metal Exchange Corporation (MEC) and memorandum of understanding with Advanced Material Japan Corporation (AMJC).
• 2021 (Nov) AMJC is one of the largest titanium and magnesium trading house in Tokyo committing to a minimum 4,000 tonnes per year. It is also willing to provide funding to LMG to expand its plant.
• 2021 (Dec) In the last month, LMG has received enquiries for the supply of 20,000 plus tpa of magnesium. These enquiries have come from Magnesium users globally that want to diversify their supply away from China

I personally I consider Japan as being very likely.

• 2021 LMG plans to sell the refined magnesium under long-term contracts to USA and Japanese customers.
• 2021 LMG has a signed binding offtake agreement with Metal Exchange Corporation (MEC) and memorandum of understanding with Advanced Material Japan Corporation (AMJC).
• 2021 (Nov) AMJC is one of the largest titanium and magnesium trading house in Tokyo committing to a minimum 4,000 tonnes per year. It is also willing to provide funding to LMG to expand its plant.

Pacific Metals in Japan that looks interesting?
https://www.pacific-metals.co.jp/en/corporate

Feedstock of ferro nickel slag?
https://www.pacific-metals.co.jp/en/products/slag.html

Also have a look at the size of AMJC! (Advanced Material Japan Corporation)
https://www.amjc.co.jp/en/

AMJC is owned by 1 Major Shareholder: Alconix Corporation (100%)
Alconix Corporation is an Import/Export and domestic sales of Non-ferrous metal products or resources including minor metals and rare earths.

The company has Capital of about $36 billion AU and Annual sales of $2.6 billion AU…WOW!


Sustainability

• 2021 (Dec) Pathway to establishing a 100,000tpa plant is clear operating on renewable energy and producing nearly zero CO2 emissions.
• 2022 The LMG project is at the forefront of environmental benefit – by recycling power plant waste, avoiding landfill and being a low CO2 emitter. LMG adopts the principles of an industrial ecology system.

A NEW Currently Accepted Best Practice is what LMG are endeavouring to achieve. It is extremely obvious by comparison of LMG’s Hydromet Process to the current industry standard best practice (Pidgeon Process, CHINA) that LMG are well on the right track.

When the demonstration plant kicks all proposed goals, LMG will be setting the new benchmark in producing Magnesium, within Integrated Management Systems. IMO this is territory ripe for the picking and LMG has the process!

Why is this point of current best practice so important? Improvement in processes that reduce energy consumption, reduce C02 emissions, recycle and eliminate toxic waste are being urged, if not demanded from across the globe. Regardless if you are a climate change denier, the world has left the station and steaming ahead with the new paradigm. I believe this new paradigm being developed by LMG is of extraordinary significance for the reform of current toxic and high CO2 emissions within the Magnesium industry "Currently Accepted Best Practice"

In one report I read “The results indicated that, for each kilogram of Mg produced by Pidgeon process (Used in Chon) GHG emissions and energy usage would be 27kg CO2eq and 280MJ, which are five times higher than steel production”.

In another research report I read,
"Most magnesium plants in China use coal as fuel. The production of every 1 t of magnesium consumes 8–12 t of high-quality coal. In addition to wasting energy source and resources, this also emits a large amount of waste gas, causing serious environmental pollution. It is remarkable and of great importance that the toxic waste called fly ash is LMG's feed Stock (In addition to ferronickel slag).

China emits 21 to 22 tons of Co2, per ton of Magnesium, the initial LMG 3000tpa trial plant will emit 10.2 tons of Co2, per ton of Magnesium (50% reduction compared to China). The significance of the ferro nickel slag is that the plant at that 100,000tpa Magnesium stage will be only 0.7 to1.5 tons of Co2, per ton of Magnesium! The goal for the final Co2 is to reduce the emissions even further by greater use of renewable energy as well as carbon offsets.

From LMG’s web site: “LMG is targeting net zero emissions by 2050 through the use of renewables and other technology advancements in conjunction with industry and its partners such as CSIRO”.

LMG’s Hydromet process is way ahead of the pack in every aspect of production and global expectations. If you have doubts on my summation, have a look at the comparisons that have been a central aspect of LMG's Annual reports and Investor Presentations for years now.

I believe the LMG's Hydromet Process will become the NEW Accepted Industry Best Practice and will be included in Codes of practice and within International Standards. My point is that LMG are not just new industry entrants, they are Industry reformers that have such an exciting opportunity to reform Magnesium production.

In addition to the above, China has mega problems in the geopolitical arena, juggling power supply for all their industries and their inconsistent and problematic supply of Magnesium as the world's number 1 supplier, let alone their arrogant supremacy.



Scalability

• 1,000tpa demonstration plant by 1st quarter of 2023.
• 10,000tpa commercial plant by 2nd quarter 2024.
• 100,000tpa overseas plant by 2nd quarter 2026.
• 2022 Owing to the Chinese situation, LMG has brought forward the development of its 100,000tpa plant using ferro nickel slag as its feedstock. (Overseas)

Profitability

	Column 1	Column 2	Column 3
0	10,000tpa (Fly ash)​	100,000tpa (Ferro nickel slag)​
1	Commencing production in 2024	Commencing production in 2026
2	Expansion funded by project finance	I believe joint funding with offtake partner
3	50% reduction of CO2 of industry standard	Lowest CO2 output. (Aiming for Net Zero CO2)
4	$126m capex	$914m capex
5	$110m revenue	$930m revenue
6	$42m EBITDA	$525m EBITDA
7	10.2 tons of CO2 per ton of Mg	0.7 tons of CO2 per ton of Mg
8	Improvement expected after 1000tpa Demo	Improvement expected after 10000tpa Demo
9

Market Dynamics

2021 the Chinese authorities ordered the closure of 18 magnesium plants in Shaanxi and 30 other plants capacity was reduced to 50% capacity from 17 September to end of December 2021. Shaanxi produces approx. 65% of the World’s production. This meant that the supply of magnesium to the rest of the World was severely restricted.

Consequently, the magnesium price trebled and magnesium users have been looking for alternative major suppliers of which there aren’t any. The Chinese magnesium price reached a high of US$11.200 per tonne. In September, 2021 the Chinese magnesium price hit a record high of US$11,200 to fall in November to US$4,700 and then has rebound to its current price on 21 January 2022 of US$7,500 per tonne.

World Magnesium market is set to double IMA’s January 2022 advice China’s domestic primary magnesium industry has entered a period of structural change, driven by the strict implementation of government policies aimed at achieving the country’s ‘Dual Carbon Policy’ targets of peak carbon emissions by 2030 and carbon neutrality by 2060. As a major emitter of carbon dioxide (Scope 1 plus Scope 2), China’s magnesium industry will not escape scrutiny.

Current world magnesium production estimates for 2020 were 1M tonnes of which 85% to 90% is produced in China. Estimated are that this demand will double to 2M tonnes by 2027.

The Magnesium metal market is forecast to reach a size of $5.4 billion USD ($7.31b AUD) by 2025 based on a CAGR of 7.5% from 2020 to 2025.


Looking Forward

In December 2021, LMG was reported in the Austrade’s Critical Minerals Prospectus. The report will feature in their worldwide investment attraction events in 2022.

“LMG announces it will complete a prefeasibility study on a 100,000 tpa magnesium plant using ferro nickel slag as its feedstock in 2022 to supply the growing magnesium market. The plant will be located next to a renewable energy facility.”

2022 Federal Government policy to provide $2b to assist the establishment of critical mineral projects, specifically lithium, magnesium and nickel.

The next very important phase will be LMG finalisation of tenders for the blast furnace and other equipment. Once procurement has been achieved and communication of their installation commencement, we should see another rapid rise in sp. The rise in s.p will only be a scratch on the surface to what will be achieved once LMG’s Hydromet process is established and refined/improved outcomes by the use of more renewables and greater reductions in C02.

The platform is set, the wheels are in motion, it is the LMG Management that must keep demonstrating they are gaining ground, continuing in proving technology and changing mind sets. ZERO C02 is their goal and by their accounts using fly ash and ferronickel slag, it is attainable.

Once the LMG Patented process is established, there will be a surge of interest from car manufacturers all over the world in how they can have access to magnesium that is produced via a license process and achieve comparative market acceptance and entry using "Green Magnesium".

CEO David Paterson has already stated that they have far more demand than they can keep up with. Market acceptance and entry that will be based upon Current Accepted Best Magnesium Production developed by LMG. The scope is massive!



LMG Special Primary Pickle

What do I mean by the primary pickle (pp), I mean the aspect of the business that separates the business strategy from the rest within the sector to enable a market advantage.

LMG has an ultimate pickle of massively understated significance that encapsulates all the above. It is "ZERO CO2" within an era of Global demand for CO2 reduction!!!! Global competition to prove the weasel of sustainability. Global constraint to source "Green Magnesium" for the sake of market share.

Yes, that is the remarkable pickle for LMG. The recycling of a waste product, the use of solar energy, a patented process that has multiple by-products to off-set production costs... That is the pickle!


Funding

2021 LMG is now fully funded to complete the construction of its $39M plant, designed to demonstrate the use of LMG’s Hydromet technology to extract high grade magnesium and other valuable by products from both fly ash and ferro nickel slag feedstocks.

The 100,000tpa plant could be in partnership with AMJC. AMJC (Advanced Material Japan Corporation) is one of the largest titanium and magnesium trading house in Tokyo committing to a minimum 4,000 tonnes per year. It is also willing to provide funding to LMG to expand its plant.


Possible in my opinion

The German plant will be secondary or after the Japan or American plant. Once the 1,000 tpa demonstration and then upgrade to 10,000tpa plant in Australia (Feedstock fly ash) are operational, the proposed RWE German plant (fly ash) will likely be postponed for some time. The addition of a 100,000 tpa plant on the RWE Hambach site could met by massive protests, even if the protestors are uniformed regarding the recycling and removal of toxic waste. Also RWE is proposed to supply fly ash NOT ferro nickel slag. After some research I have found that due to significant unrest in preserving the Hambach forest adjacent to the RWE mine, there is great opposition to RWE.

www.youtube.com/watch?v=gM-KJs5ip5U

“The Hambach surface mine, operated by energy giant RWE, is the largest of its kind in Europe. The company has argued that removing the forest was necessary to meet Germany's energy needs. A number of villages have also fallen victim to the mine and its continued expansion.”

I do not believe the Hambach fly ash is good for the LMG reputation for now.

https://www.dw.com/en/german-court-clearing-hambach-forest-treehouses-illegal/a-59124937

Imo, we have moved from research to trial and now to demonstration and for those long-term holders, I can see it has been a long journey but with tremendous prospects. The demonstration plant is now on the cusp of establishment and commissioning, with site purchase, early site works completed, tenders for equipment all in order, there is tangible momentum.

Given the amount of time, resources, professional investment, consultancies, interested parties, keen offtakes, etc, I believe this plant will be highly successful and pave the way to the 100,000tpa plant with great enthusiasm, confidence and global interest. It will not be long at all before we have an announcement regarding the award of tender and commencement of plant installation.


All the very best to all holders and please note, some of this post is only my opinion.

Regards

Ken