The timing could not have been better. Last week, Latrobe Magnesium (ASX: LMG) announced an oversubscribed $3 million placement, money that will be used to fast-track completion of design and engineering services for the initial magnesium demonstration production plant in Victoria’s Latrobe Valley.
Why the timing issue? Because, out of the blue, the world is suddenly facing a magnesium metal shortage. In fact, it’s more like a crisis.
Europe’s aluminium refining sector — which supplies that key element to automakers — expects to exhaust stocks of magnesium metal, a vital feedstock, by the end of November.
Magnesium metal hardens the aluminium that is used in gearboxes, engine blocks, frames and other parts of cars.
News reports in Beijing over the weekend warned to expect global shortages. That is because China now supplies 87% of the world’s magnesium metal and, due to the chronic electricity shortages, Beijing recently ordered closed 25 magnesium plants to close.
Plans to raise output to 40,000 tonnes
Latrobe plans to use the demonstration plant to produce 3,000 tonnes per annum of magnesium metal from fly ash, a waste by-product of the giant, 1,480 megawatt Yallourn power station which burns brown coal.
The company has completed a feasibility study validating its proprietary hydromet-thermal reduction extraction process and construction is expected to start in the new year, with first production targeted for 12 months later.
Once the plant has been in operation for a year, work will commence on expanding its capacity to 40,000tpa.
Latrobe plans to sell the refined magnesium under long-term contracts to customers in Australia, Japan and the United States.
Two cornerstone investors have already been locked in to receive magnesium and supplementary cementitious materials samples within the next month so they can finalise their investment in Latrobe before the new year.
Magnesium metal price doubled in past year
Beijing mouthpiece The Global Times claims that “most” magnesium production has resumed but export volumes are expected to be down 10%.
In fact, the article states that, while production is on again, the plants are running at 40% capacity — which suggests that export volumes will be down a great more than 10%.
Yulin accounts for 65% of China’s magnesium metals output.
The paper said it has been told the industry is facing “unprecedented challenges”, with uncertainty and volatility forecast to persist until the end of the year.
In China, the magnesium price has doubled in the past year, now standing at US$4,700 per tonne (A$6,280/t), the highest since 2008.
“A jump in coal prices also pushed up the production costs of magnesium,” the paper added.
It also noted the import price for European users has risen 75% in the past month, to more than US$9,000/t (A$12,023/t).
Latrobe plant will meet emissions goals
The Global Times says it takes between 35 megawatt hours and 45MW/h to produce 1t of magnesium metal.
China has, at best, managed to limit to 28t of carbon dioxide produced in the making of 1t of magnesium.
The Latrobe Magnesium plant will emit just 10t of carbon dioxide per tonne of magnesium metal derived from fly ash.
There are no substitutes for magnesium in aluminium sheet and billet production.
A project long in the making
The story began in August 2002 when Rambora Technologies put out an ASX announcement headed “Acquisition of Latrobe magnesium project”.
The company told the market the project had the potential to produce 100,000tpa of magnesium metal a year, using a “new dehydration technology to be provided by Canadian multinational Alcan International [that] contributes to the low capital and operating costs”.
The announcement also said the company was changing its name to Latrobe Magnesium.
Now, 19 years on, funds raised in the recent placement will bring this long-awaited project to reality.
The initial 3,800tpa plant is expected to generate about $28 million in revenue.
All approvals have been received for the demonstration plant.
The Latrobe plant will come on the scene against a critical background: as the Brussels-based European Aluminium Association put it, its industry faces “dramatic risks” in continuing with its dependence on China for magnesium metal.