Manganese ore: Where is the recovery? Kevin Fowkes Ferroalloy Industry Consultant www.kevinfowkes.com 29 th March, 2012
Manganese ore:Where is the recovery?
Kevin FowkesFerroalloy Industry Consultant
www.kevinfowkes.com
29th March, 2012
• Manganese is the world’s fourth most heavily consumed metal
• Global mine output of 15 million tonnes in 2011 – over 90% goes into steel
• All steels contain manganese
• Manganese is used to remove sulphur from liquid steel
What is manganese?
• Manganese is used to remove sulphur from liquid steel(sulphur causes steel to crack)
• There is no viable substitute for manganese as a de-sulphiriser
• Manganese is also used to improve the strength of certain steels(structural steels, high strength flat steels)
• Non-steel consumption of manganese includes de-polarisation of dry-cell batteries, and as an additive in certain aluminium and copper alloys
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Global demand for manganese ore(million tonnes contained Mn)
12
14
16 15.2
Manganese demand – a success story:
(1) Global demand has doubled in the past decade
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0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Rest of world
China
24%
53%
7.4
Average Mn content of global steel output
0.76%
0.78%
0.80%
Manganese demand – a success story:
(2) Average Mn content per tonne of steel is rising
+6.6%
6.0%
6.5%
7.0%
Global average annual growth rate, 2000-2011
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0.68%
0.70%
0.72%
0.74%+5.5%
4.0%
4.5%
5.0%
5.5%
Crude steel production
Manganese demand
Global demand for manganese ore(million tonnes contained Mn)
15
20
15.2
Manganese demand – a success story:
(3) Expect demand growth of 33% (5Mt) by 2020
20
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0
5
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2020
Rest of world
China
24%
53%
7.4
12.00
14.00
16.00
18.00
20.00Mn ore benchmark price (US$ per dmtu CIF China)*
Yet, Mn ore prices have become particularly depressed
0.00
2.00
4.00
6.00
8.00
10.00
12.00
*Benchmark price for Australian 44/45% lumpy ore on a CIF China basis, as reported in various sources
2000
2500
3000
15.00
20.00
Mn ore (left axis)*
SiMn (right axis)**
US$ per dmtu
Mn ore prices have not yet showed the signs of price recovery that are visible in Mn alloy markets
US$ per tonne
500
1000
1500
2000
0.00
5.00
10.00
*Benchmark price for Australian 44/45% lumpy ore on a CIF China basis, as reported in various sources**US spot price for silicomanganese, delivered to warehouse
South Africa
Ukraine
KazakhstanGhana
Others
Mn ore production is relatively concentrated, both geographically and in terms of number of producers
Global Mn ore production by country, 2011
BHP Billiton
Global Mn ore production by company, 2011
Australia
China
Gabon
Brazil
India
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Total: 15 million tonnes
Data shown on a contained Mn basis
Eramet
Assmang
PrivatVale
Others
Chinese consumption of manganese ore
70%
80%
90%
100%
Imported
The tremendous growth in Chinese Mn ore consumption is being fuelled by imports
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0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Domestic
Chinese Mn ore imports(million tonnes contained Mn)
Chinese Mn ore imports reached 5.5Mt in 2011. Australia, S.Africa and Gabon account for 77%
4
5
6
Other
Ghana
12%
5.5
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0
1
2
3Brazil
Gabon
Australia
South Africa
12%
24%
22%
28%0.4
37%
Around 85% of Mn ore supply to China breaks even below current benchmark price levels on a cash basis
4
6
Estimated Mn ore cash production costs, CIF China*(US$ per dmtu)
Current benchmark price ~$4.60/dmtu
0
2
4
0 2 4 6 8
* Does not include interest payments or depreciationCumulative sales to Chinese market
(Mt contained Mn)
Average Mn ore cash production costs, CIF China*(US$ per dmtu)
Rising underlying Mn ore mining costs are being hidden by abnormally low shipping rates
4
6
Shipping to China
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0
2
2006 2008 2010 2012
Transport to port
Mine cost
* Does not include royalties, commissions, interest payments or depreciation
5000
6000
7000
8000
Baltic dry index, annual average
Shipping rates fell drastically in 2009 following the global financial crisis, and have continued to decline
0
1000
2000
3000
4000
5000
2006 2007 2008 2009 2010 2011 Q1-2012
Global demand for manganese ore(million tonnes contained Mn)
15
20
15.2
20
Mn ore demand will rise by 33% by 2020….where will this be supplied from?
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0
5
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2020
Rest of world
China
24%
53%
7.4
• Most extra demand in the past decade has been met by brownfield expansion, but for demand growth on this scale, new greenfield capacity will be essential
• South Africa will need to be the focal point of large-scale greenfield projects
Mn ore demand will rise by 33% by 2020….where will this be supplied from?
World Mn ore reserves World Mn ore resources
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South Africa
Other countries
South Africa
Other countries
Source: USGS
World Mn ore reserves
75%
19%
World Mn ore resources
Most Mn ore in S.Africa is in the Kalahari basin. New operations will be based on lower grade carbonate ore
Kalahari
High-grade ore, up to 48% Mn. Mostly controlled by established producers (Assmang and BHP Billiton)
Kalahari manganese basin
SOUTH AFRICA
Lower-grade carbonate ores,avg. 34-38% MnVast undeveloped resources
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Map of Kalahari manganese basincourtesy of Assmang
Mn ore exports from S.Africa will be constrained by rail and port capacity bottlenecks for the next decade
• Manganese ore for export from the Kalahari mines is subject to severe logistical bottlenecks in terms of rail and port capacity
• This has already leading to rationing of rail paths between producers, with increasing pressure from the new mines coming on-stream
• Current plans propose a new rail link and port terminal by earliest 2017. This • Current plans propose a new rail link and port terminal by earliest 2017. This makes it challenging for new entrants to ramp up as planned from 2012-15
• Trucking of Mn ore from the Kalahari has risen substantially, but comes with its own constraints in terms of cost, road/truck capacity and environmental/safety pressures. Trucking not viable at current prices
• Current low Mn prices reduce business case for infrastructure investment
• Sintering is a potential solution, but expensive
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Estimated Mn ore cash production costs, CIF China*(US$ per dmtu)
Trucking carbonate ore from the Kalahari is not a viable option at current price levels
6
8
Shipping to China
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0
2
4
Railed Trucked
Transport to port
Mine cost
* Based on 37% Kalahari ore with no sinter plant; assumes oil prices as of March 2012** Assumes 20% quality discount to published benchmark Mn ore spot prices
Current spot price level**
Estimated Mn ore cash production costs, CIF China*(US$ per dmtu)
Incorporating payback of investment, trucked Kalahari carbonate ore will require a price of $7/dmtu CIF China
6
8
Depreciation & amortisation***
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0
2
4
Railed Trucked
Shipping to China
Transport to port
Mine cost
* Based on 37% Kalahari ore with no sinter plant; assumes oil prices as of March 2012** Assumes 20% quality discount to published benchmark Mn ore spot prices*** Incorporates estimates for both construction and sustaining capital
Current spot price level**
• Manganese demand has experienced strong growth in the past decade, and these positive trends are expected to continue through the next 5-10 years
• Expect demand to grow by one third by 2020
• Currently, rising demand is being satisfied by piecemeal brownfield expansion of low-cost existing mines
In conclusion…
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• Consequently, prices can persist at relatively low levels and still yield adequate returns for the major producers
• Rising demand will eventually require large-scale greenfield South African capacity to come on-line, much of it initially based on trucking product to port
• There will need to be a step change of prices to >$7/dmtu to attract this production, in order to generate an adequate return for new producers
• However prices unlikely to improve from $4.50-5.50/dmtu range in 2012/13