Manganese ore: Where is the recovery? Kevin Fowkes Ferroalloy Industry Consultant 29 th March, 2012
What is manganese? 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 (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
Manganese demand a success story: (1) Global demand has doubled in the past decade 14 12 Global demand for manganese ore (million tonnes contained Mn) 16 15.2 10 8 6 7.4 Rest of world China 4 2 0 24% 53% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Manganese demand a success story: (2) Average Mn content per tonne of steel is rising 0.80% Average Mn content of global steel output 7.0% Global average annual growth rate, 2000-2011 0.78% 6.5% +6.6% 0.76% 6.0% 0.74% 5.5% +5.5% 0.72% 5.0% 0.70% 4.5% 0.68% 4.0% Crude steel production Manganese demand
Manganese demand a success story: (3) Expect demand growth of 33% (5Mt) by 2020 20 Global demand for manganese ore (million tonnes contained Mn) 20 15 15.2 10 7.4 Rest of world China 5 53% 0 24% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2020
Yet, Mn ore prices have become particularly depressed 20.00 Mn ore benchmark price (US$ per dmtu CIF China)* 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 *Benchmark price for Australian 44/45% lumpy ore on a CIF China basis, as reported in various sources
Mn ore prices have not yet showed the signs of price recovery that are visible in Mn alloy markets 20.00 US$ per dmtu US$ per tonne 3000 15.00 Mn ore (left axis)* SiMn (right axis)** 2500 2000 10.00 1500 5.00 1000 0.00 500 *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
Mn ore production is relatively concentrated, both geographically and in terms of number of producers Global Mn ore production by country, 2011 Global Mn ore production by company, 2011 Ghana Kazakhstan Others South Africa BHP Billiton Ukraine India Others Brazil Eramet Australia Gabon Assmang China Vale Privat Total: 15 million tonnes Data shown on a contained Mn basis
The tremendous growth in Chinese Mn ore consumption is being fuelled by imports 100% Chinese consumption of manganese ore 90% 80% 70% Imported 60% 50% 40% 30% 20% 10% Domestic 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chinese Mn ore imports reached 5.5Mt in 2011. Australia, S.Africa and Gabon account for 77% 6 Chinese Mn ore imports (million tonnes contained Mn) 5.5 5 Other 4 12% Ghana 3 37% Brazil Gabon 2 1 24% 22% 0.4 28% Australia South Africa 0
Around 85% of Mn ore supply to China breaks even below current benchmark price levels on a cash basis 6 Estimated Mn ore cash production costs, CIF China* (US$ per dmtu) Current benchmark price ~$4.60/dmtu 4 2 0 0 2 4 6 8 Cumulative sales to Chinese market * Does not include interest payments or depreciation (Mt contained Mn)
Rising underlying Mn ore mining costs are being hidden by abnormally low shipping rates 6 Average Mn ore cash production costs, CIF China* (US$ per dmtu) Shipping to China 4 Transport to port 2 Mine cost 0 2006 2008 2010 2012 * Does not include royalties, commissions, interest payments or depreciation
Shipping rates fell drastically in 2009 following the global financial crisis, and have continued to decline 8000 Baltic dry index, annual average 7000 6000 5000 4000 3000 2000 1000 0 2006 2007 2008 2009 2010 2011 Q1-2012
Mn ore demand will rise by 33% by 2020. where will this be supplied from? 20 Global demand for manganese ore (million tonnes contained Mn) 20 15 15.2 10 7.4 Rest of world China 5 53% 0 24% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2020
Mn ore demand will rise by 33% by 2020. where will this be supplied from? 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 World Mn ore reserves World Mn ore resources 19% South Africa South Africa Other countries 75% Other countries Source: USGS
Most Mn ore in S.Africa is in the Kalahari basin. New operations will be based on lower grade carbonate ore High-grade ore, up to 48% Mn. Mostly controlled by established producers (Assmang and BHP Billiton) Lower-grade carbonate ores, avg. 34-38% Mn Vast undeveloped resources Kalahari manganese basin SOUTH AFRICA Map of Kalahari manganese basin courtesy 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 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
Trucking carbonate ore from the Kalahari is not a viable option at current price levels 8 Estimated Mn ore cash production costs, CIF China* (US$ per dmtu) 6 Shipping to China 4 Current spot price level** Transport to port 2 Mine cost 0 Railed Trucked * 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
Incorporating payback of investment, trucked Kalahari carbonate ore will require a price of $7/dmtu CIF China 8 Estimated Mn ore cash production costs, CIF China* (US$ per dmtu) 6 Depreciation & amortisation*** 4 2 Current spot price level** Shipping to China Transport to port Mine cost 0 Railed Trucked * 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
In conclusion 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 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