project economics? Out of interest, I have done a few spreadsheet calculations to guess at the economic robustness of Stanwell. In doing the calculations I made the following assumptions:
The technology will function as predicted.
Amount to be repaid: 1.5 Billion AUD
Rate of interest: 5%pa, calculated monthly
Cost of production(excluding interest): 0.60 USD/lb
Magnesium Price: 1 USD/lb
Annual Production: 220 Million lb per annum
Life of Project: 20 years
1AUD = 0.66 USD
Based on these assumptions, ANM would generate about 45 cps (AU) over the life of the project. But make any of the following changes and the project becomes uneconomic:
Loan amount >= 1.68 Billion AUD
Interest rate >= 6.5%
Magnesium price <= 0.955 USD/lb
Based on these assumptions, I cant see the project succeeding, so I would be grateful if anyone could post the assumptions on which the project economics were estimated by ANM.
Readers might also be interested in this Mineral Industry Survey from the USGS website, which gives information on the magnesium price, amongst other things.
http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/index.html#mcs
U.S. Department of the Interior February 2003
U.S. Geological Survey
Notice
The U.S. Geological Survey (USGS) will no longer print paper copies of the Minerals Industry Surveys for
mailing list distribution after release of the Fourth Quarter 2002 report. The report will continue to be available
on the USGS web site at URL http://minerals.usgs.gov/minerals.
If you would like to receive e-mail notification for future issues of the Mineral Industry Surveys, instructions are
provided at http://minerals.usgs.gov/minerals/pubs/listservices.html.
Mineral Industry Surveys
For information, contact:
Deborah A. Kramer, Magnesium Commodity Specialist Jesse Inestroza (Data)
U.S. Geological Survey Telephone: (703) 648-7968
983 National Center Fax: (703) 648-7975
Reston, VA 20192
Telephone: (703) 648-7719, Fax: (703) 648-7722 Internet: http://minerals.usgs.gov/minerals
E-mail: [email protected]
MAGNESIUM IN THE FOURTH QUARTER 2002
Exports of magnesium through November 2002 were about
29% higher than those in the same period of 2001. Magnesium
imports through November 2002 were 29% higher than those in
the corresponding period of 2001. Russia (48%), Canada
(23%), and Israel (21%) were the principal sources of imported
metal. Canada (62%), China (26%), and Russia (5%) were the
principal sources of imported alloys.
Quoted magnesium prices remained fairly stable throughout
the fourth quarter, with some prices increasing slightly and
others declining. Prices are shown in the following table.
Units Beginning of quarter End of quarter
Metals Week U.S. spot Western Dollars per pound $1.14-$1.23 $1.10-$1.22
Metals Week U.S. spot dealer import do. 1.00-1.07 1.02-1.07
Metals Week European free market Dollars per metric ton 1,830-1,900 1,800-1,900
Metal Bulletin European free market do. 1,880-1,980 1,880-1,980
Metal Bulletin China free market do. 1,370-1,390 1,360-1,380
After a review of the August 1, 2000 to July 31, 2001, period,
the International Trade Administration (ITA) determined that
the antidumping duty for pure magnesium from Canada
imported into the United States from Norsk Hydro Canada Inc.
was 0% ad valorem. The ITA also did not revoke the
antidumping order for pure magnesium from Canada (U.S.
Department of Commerce, International Trade Administration,
2003).
European antidumping duties on magnesium from China were
expected to be dropped by the end of February. The 31.7% duty
had been expected to be repealed since Pechiney closed its
magnesium plant in France in mid-2001; this was the last plant
operating in the European Union (Francis-Grey, 2003).
U.S. Magnesium LLC expected to return to its full 43,000-
metric-ton-per-year (t/yr) capacity at its Rowley, UT, plant by
February 2003, after completing the installation of new
electrolytic cell technology. The company consolidated
operations into two buildings from four and expects to be able to
produce the same quantity of magnesium as before, with fewer
cells. U.S. Magnesium also planned to complete an engineering
study by summer 2003 to assess the feasibility of increasing
production to 80,000 t/yr by introducing the new cells into the
2
two closed buildings (Brooks, 2003b).
Afer several years of evaluating sites in Australia, Mt. Grace
Resources Ltd. announced that it was planning to construct a
magnesium plant in Perak State, Malaysia. The company
planned to purchase the Northwest Alloys plant from Alcoa Inc.
for $21 million, dismantle it, and then ship the plant from its
location in Addy, WA, to Malaysia. Mt. Grace Resources,
which changed its name to New World Alloys Ltd. in January
2003, planned to make some modifications to the plant after it is
moved that would increase the plant’s capacity to 90,000 t/yr.
The direct capital cost of the project is estimated at $150
million. Construction of the project is expected to begin in the
first half of 2003, with initial magnesium production in the
second quarter of 2004 (New World Alloys Ltd., 2003§1).
In the fourth quarter of 2002, Australian Magnesium Corp.
Ltd. (AMC) completed a sales agreement for 15,000 t/yr of
magnesium to a European metals company for a 3-year period,
formed an alliance with Hong Kong-based Lee Kee Group Inc.
to develop markets for its magnesium products in China, and
signed an agreement with European component manufacturer
Wagon plc to develop magnesium automotive applications.
AMC also stated that with progress on plant construction, it
expected to be on target for first metal production from its
97,000-t/yr Stanwell magnesium plant by December 2004
(Australian Magnesium Corp. Ltd., 2003§).
Magnesium International Ltd. and Thiess Ltd. announced that
they have agreed on a A$751.5 million price for the engineering,
procurement, and construction of the 71,000-t/yr SAMAG
magnesium smelter to be built at Pt. Pirie in South Australia.
Construction is expected to begin by mid-2003, with operations
to start by the end of 2005 (Hagopian,and Francis-Grey 2002).
Latrobe Magnesium Ltd. reported that the Federal
Government had approved funding of approximately A$1.4
million towards the cost of the Latrobe Magnesium project
bankable feasibility study. The approval was conditional on the
project receiving at least matching funding from the Victorian
government. The bankable feasibility study was scheduled to
begin in March 2003 and take 2 years to complete at a cost of
A$20 million. The company also reached agreement with
Yallourn Energy Pty. Ltd. for the supply of its brown coal fly
ash as a raw material for the proposed magnesium plant.
Latrobe said this brings sufficient ash resources to the project to
enable it to produce 77,000 t/yr of magnesium alloys for a
minimum 20-year life. (Nordic Magnesium Cluster, 2002§).
Magnola Metallurgy Inc. announced that it would close its
58,000-t/yr primary magnesium plant in Quebec because of
competition from low-priced magnesium from China. The plant,
which has been operating for about 2 years, was expected to be
closed by the end of the first quarter of 2003, with the closure
lasting at least 1 year, but it could be closed longer if magnesium
prices do not increase. Exacerbating the problem of low
magnesium prices was the technical problems the plant had
encountered since its start-up in December 2000. The plant was
using asbestos tailings as a raw material source and had
encountered problems in introducing new recovery technology;
the plant produced 24,600 metric tons (t) in 2002, which was
less than one-half of its rated capacity (Brooks, 2003a).
In January 2003, Magnesium Alloy Corp. reported that
because of market conditions, it will no longer be proceeding
with its previously announced private placement of 6,000,000
units consisting of one common share of the company and
one-half of one common share purchase warrant. The placement
was originally announced in November 2002 (Magnesium Alloy
Corp., 2003a§). Instead, the company completed a placement of
1,000,000 units at a price of $0.15 per unit in February. The
smaller placement was intended to supply working capital and
general corporate expenses for the company’s proposed 60,000-
t/yr magnesium plant in Congo (Brazzaville) (Magnesium Alloy
Corp., 2003b§).
Xstrata PLC said that it intended to sell its 25,000-t/yr
magnesium recycling plant in Anderson, IN, that just began
operation in 2001. The company said that it had failed to source
adequate quantities of magnesium scrap or penetrate the U.S.
auto market (Reuters, 2003§).
General Motors Corp. (GM) completed plans to install
magnesium alloy instrument panel support beams on all of its
North American-built automobiles designed on the Epsilon
platform, which includes the Chevrolet Malibu and Pontiac
Trans Am. All of the instrument panel support beams that will
be installed in redesigned models beginning in 2004 will be onepiece
die castings and will be supplied by three different
manufacturers. These manufacturers are Lunt Manufacturing
Co. Inc., Hampshire, IL; Meridian Technologies, Strathroy
Ontario, Canada; and TriMag unit of Société de Développement
du Magnésium s.e.c., Boisbriand, Quebec, Canada. The support
beams, which will weigh between 4.5 and 12.2 kilograms (10
and 27 pounds) will be manufactured from the AM series of
alloys. GM estimated that about 900,000 of the beams will be
used annually, with a magnesium consumption of more than
9,000 t/yr (Wrigley, 2002a).
In contrast, GM has decided to replace the magnesium
instrument panel support beams on its Chevrolet Silverado and
GMC Sierra pickup trucks with steel beams. According to the
company, changes in other areas of the pickup trucks made it
unnecessary to use magnesium beams for weight reduction. The
new steel beams were designed in such a way that they would
not require as many pieces and consequently, fewer welds or
fasteners; before the mid-1990s, steel beams consisted of as
many as 40 pieces (Wrigley, 2003).
Ford continued its plans to install magnesium cam covers on
its Triton V-8 and V-10 engines over the next 2 years. Ford,
which had been hesitant to replace the plastic covers with
magnesium in North American-produced vehicles because of
magnesium’s cost, decided magnesium’s quality and durability
benefits in certain areas outweighed its cost. The new
magnesium parts, which will be phased in by engine type, are
expected to consume more than 3,000 t/yr of magnesium. The
supplier for the AZ91 die-cast covers for the V-8 engines will be
Spartan Light Metal Products, Sparta, IL, and other suppliers
may be added as the number of applications increase (Wrigley,
2002b).
Rossborough-Remacor LLC announced that it has developed
a new proprietary cost-effective technology for processing oily
magnesium turnings. The company has been processing this
1References that include a section twist (§) are shown in the Internet
References Cited section.
3
material for over 15 years at its West Pittsburg, PA, plant.
Because the existing process was not cost effective, the company
has had to charge fees for processing in order to continue
operations. A patent is pending on the process and
Rossborough-Remacor planned a two-phase equipment
installation at the West Pittsburg plant. The first phase is
scheduled for completion by the first quarter of 2004. This new
process is expected to create a safe and economical method of
disposal of a hazardous material by conversion to a
desulfurization-grade magnesium granule (Nordic Magnesium
Cluster, 2003§).
CORRECTION—In Magnesium in the Third Quarter 2002,
information was presented about Remag Alloys BV plans to
construct a 10,000-t/yr magnesium recycling plant in Delfzijl,
Netherlands. The cost of the magnesium recycling plant was
misstated at $255 million; this budget does not apply to the
10,000-t/yr magnesium recycling plant but to the 50,000-t/yr
primary magnesium plant proposed by Antheus Magnesium.
References Cited
Brooks, David, 2003a, Noranda opts to close Magnola as prices sag: American
Metal Market, v. 111, no. 4-3, January 29, p. 1, 3.
Brooks, David, 2003b, U.S. Magnesium ramps up to full output: American
Metal Market, v. 111, no. 4-2, January 28, p. 6.
Francis-Grey, Paul, 2003, EU’s import duties on magnesium expected to be
dropped this month: American Metal Market, v. 111, no. 5-4, February 6, p.
6.
Hagopian, Arthur, and Francis-Grey, Paul, 2002, SAMAG project finalises
engineering contract: Metal Bulletin, no. 8731, December 9, p. 9.
U.S. Department of Commerce, International Trade Administration, 2003, Pure
magnesium from Canada; final results of antidumping duty administrative
review and determination not to revoke order in part: Federal Register, v.
68, no. 9, January 14, p. 1817-1819.
Wrigley, Al, 2002a, Cars built off GM’s Epsilon platform to feature magnesium
support beams: American Metal Market, v. 100, no. 95-3, November 20, p.
6.
Wrigley, Al, 2002b, Ford switching to magnesium cam covers: American
Metal Market, v. 110, no. 100-1, December 23, p. 4.
Wrigley, Al, 2003, Steel recaptures IP beam from magnesium: American Metal
Market, v. 111, no. 5-1, February 3, p. 4.
Internet References Cited
Australian Magnesium Corp. Ltd., 2003 (January 21), Magnesium market
alliances advanced; Stanwell project development continues, accessed
January 31, 2003, at URL http://www.austmg.com/documents/
AMCDec02quarterly.pdf.
Magnesium Alloy Corp., 2003a (January 7), Cancellation of proposed private
placement, accessed February 3, 2003, at URL
http://www.magnesiumalloy.ca/press/030107.htm.
Magnesium Alloy Corp., 2003b (February 4), Private placement successfully
completed, accessed February 10, 2003, at URL
http://www.magnesiumalloy.ca/press/030204.htm.
New World Alloys Ltd., 2003 (January 17), Mt Grace shareholders back
US$20M magnesium plant purchase, name change, accessed January 31,
2003, at URL http://www.newworldalloys.com/releases/
MediaRelease-MtGrace-EGMJanuary(2).pdf.).
Nordic Magnesium Cluster, 2002 (December 19), Government grant approval,
accessed February 10, 2003, at URL http://normac.teknologisk.dk/8487,1.
Nordic Magnesium Cluster, 2003 (February 3), New processing technology for
magnesium turnings, accessed February 3, 2003, at URL
http://normac.teknologisk.dk/8875.
Reuters, 2003 (February 10), Update 2—Coal, economy woes sap Xstrata’s
profits, accessed February 10, 2003, at URL http://reuters.com/
financeNewsArticle.jhtml?storyID=2198511&type=companyResultsNews.
TABLE 1
U.S. IMPORTS FOR CONSUMPTION AND EXPORTS OF MAGNESIUM 1/
(Metric tons)
2002
January- January-
2001 August September October November November
Imports:
Metal 20,100 19,600 2,800 2,330 3,030 27,800
Waste and scrap 11,000 9,730 1,070 1,240 1,110 13,200
Alloys (magnesium content) 35,100 27,400 3,580 4,050 3,430 38,400
Sheet, tubing, ribbons, wire, powder, other (magnesium content) 2,870 1,360 193 199 173 1,920
Total 69,100 58,100 7,640 7,820 7,750 81,300
Exports:
Metal 4,870 6,880 1,100 1,320 1,080 10,400
Waste and scrap 6,950 3,900 498 623 597 5,620
Alloys (gross weight) 3,860 2,680 805 165 297 3,950
Sheet, tubing, ribbons, wire, powder, other (gross weight) 3,890 2,300 397 433 377 3,500
Total 19,600 15,700 2,800 2,540 2,360 23,400
1/ Data are rounded to no more than three significant digits; may not add to totals shown.
Source: U.S. Census Bureau.
end
ANM provides a good lesson for investors.
Governments promote projects for the general economic benefits they provide.
Brokers promote projects for the fees they will earn.
Contractors promote projects because of the business they will generate.
Notice that in the above cases the interests of the shareholder doesn't get mentioned. And the lesson? Dont expect others to look after you.
Happy investing.
Billy
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