ASX small caps eye magnesium market as demand soars

The most lightweight of metals, magnesium is in soaring demand for traditional uses such as die casting and aluminium alloys, as well as new-age applications such as magnesium batteries and bioresorbable stents.

One quarter the weight of steel (but stronger) and one-third lighter than aluminium or titanium, magnesium boasts impressive eco-credentials on this attribute alone: lighter vehicles mean less fuel consumption and – increasingly – more battery life.

Currently, every steering wheel is made from magnesium, and it is widely used in car parts and panels, power tools and electronic items such as laptops and mobiles. A new application is emerging in electronic anodes, which are used in energy-efficient heat pumps.

The healing properties of the metal have been well known for centuries, exemplified by products such as Epsom Salts (hydrated magnesium sulphate).

The trouble is that China accounts for almost 90% of global production, with the material produced using a traditional emissions-heavy process that requires 4 kilograms of coal for every 1kg of magnesium produced.

On industry estimates, magnesium supply stands at just over 1 million tonnes per annum, with demand expected to double by 2030. China plans to increase magnesium content in cars from 8.6kg per vehicle in 2017 to 45kg by 2030 – which alone implies a 1Mt increase.

Given the elevated magnesium price, it’s a fortuitous time to be involved in the 12th element on the periodic table – especially if a producer can make the production greener than it is.

Latrobe targets magnesium market with proprietary processing technology

On that note, Latrobe Magnesium (ASX: LMG) has been advancing its two-pronged plan to become a major producer both locally and in Malaysia, with the Malaysian Government last month approving a 100,000tpa plant in the state of Sarawak.

As its moniker suggests, the company’s mainstay project is based in Victoria’s Latrobe Valley, where it is building a pilot plant to generate magnesium materials from processing fly ash from the decommissioned Yallourn West generator.

The key environmental selling point is the fly ash sits in vast quantities, and is a waste product from the brown coal feed material.

Latrobe’s patented method involves a thermal reduction process that converts magnesium oxide into magnesium and a useful supplementary cementitious material.

Accompanying sequestration means that there’s a 50% reduction in carbon dioxide emissions compared to China’s plants.

At a $40 million cost, Latrobe is building a 1,000tpa pilot plant on an 11-hectare site, using 14,000 square metres of existing retrofitted buildings. If successful, this could pave the way for a 10,000tpa commercial plant.

The project is supported by a $23 million construction loan and a Victorian Government grant (dependant on certain milestones being hit in 2023).

Malaysian magnesium plant

After appraising three global locations with its engineering consultant Bechtel, Latrobe settled on Samalaju, Sarawak as the preferred location of its second plant.

A key reason was proximity to hydroelectric power generation, meaning the plant can operate on a net-zero emissions basis immediately after commissioning.

The site is also close to several producers of ferrosilicon, which is a requisite reagent.

Latrobe says discussions with the relevant bodies, notably the Bintulu Development Authority, are “sufficiency advanced to agree on a 40-hectare site location”.

The project is supported by a binding memorandum of understanding with Société Le Nickel (SLN), one of the world’s biggest ferronickel producers.

Under the agreement, SLN will supply 450,000t of ferronickel slag – the main input ingredient for the plant – annually over 20 years.

Latrobe’s technology is able to extract magnesium from the ferronickel slag.

At full capacity of 100,000tpa, the Malaysian plant is expected to generate $1 billion of revenue and impressive earnings before interest, tax, depreciation and amortisation of $500 million.

“The selected location offers Latrobe Magnesium the opportunity to deliver the project that will offer significant returns to shareholders, as well as positioning the company to be the world’s cleanest and largest magnesium producer by volume,” Latrobe chief executive officer David Paterson said.

Downstream magnesium processing

Further downstream in the magnesium production chain, Magontec (ASX: MGL) converts pure magnesium and alloy scrap to magnesium alloys and anodes at its facility at Qinghai province in central China.

The product is supplied to die-cast parts makers, with between 40% and 70% of the magnesium returned as scrap and recycled at the company’s German and Romanian facilities.

Magontec is also a dominant player in the higher-margin, low volume anode market – currently mainly used to prevent corrosion of hot water units.

The company is currently profitable – last year generating $158 million of revenue (up 38%) and a $16.5 million net profit (up 230%).

Magnesium explorer

Rounding out the ASX listed sector, Korab Resources (ASX: KOR) holds multiple tenements and projects prospective for several metals, the most notable being its Winchester magnesium project an hour’s drive from Darwin Port in the Northern Territory.

At Winchester, Korab aims to develop the high-grade resources to produce zero-carbon, green magnesium metal with several by products.

A scoping study published in March last year, gave Winchester 50,000tpa operation over a 14-year mine life. This was based on an indicated resource of 12.2Mt at 43.1% magnesium oxide.

Based on an existing demo plant, Korab cites a net present value of $1 billion for the project.

Despite that, Korab bears a lowly $6.6 million market capitalisation, while Latrobe and Magontec are valued at $110 million and $30 million, respectively.