Euro Manganese (ASX: EMN) - Don’t You Forget About Me!

January 29 2020, 11:02 GMT

Euro Manganese (ASX: EMN)

    • (ASX:EMN)
    • Shares Outstanding: 176.27M
    • Share price: CA$0.14 (29.01.2020)
    • Market Cap: CA$23.796M

A photo of some fine manganese against a white background.
Manganese: the forgotten EV metal?

However, while the narrative itself has been widely discussed and promoted, the constituent metals of electric vehicle batteries have seen different levels of attention. Manganese and graphite spring to mind as the poor cousins to nickel, lithium, copper and cobalt. Today, we want to talk about the first of those ‘forgotten’ metals, manganese. It’s a silver-grey transition metal with application in industrial alloys such as stainless steel, and, of course, in the cathodes of nickel-manganese-cobalt (NMC) lithium-ion batteries.

Euro Manganese Inc.

We came across a company that says it offers investors access to manganese, in the form of manganese production from tailings, Euro Manganese Inc. (TSX/ASX: EMN). Yesterday, we spoke with their CEO, Marco Antonio Romero, to discuss what sort of opportunity EMN can offer investors. CLICK HERE to watch the full interview.

The first thing to note is that this is not a mining investment story. It’s a tailings story with some production thrown in. We've covered some similar stories in recent months that also stray from conventional mining, such as Neometals, DRDGold and Jubilee Metals Group. Euro Manganese is based in the Czech Republic. Their Chvaletice Manganese Project is Europe’s largest manganese deposit by far and has a PEA. EMN is currently working on a Feasibility Study, having by-passed the Pre-Feasibility Study, and is finalising its Environmental Impact Assessment (EIA) and filing for permits.

A pilot plantwas built as part of the PEA to confirm the ultra-high purity of the productand to test the process flowsheet. Apparently, the test worked and EMN is nowready to press on with the construction of its Demonstration Plant, subject to sourcingfunding of US$4M, and the US$1M per annum operating costs. The Demonstration Plantis designed to produce bulk, multi-ton samples of manganese products for potentialcustomers to trial. This should yet again prove EMN’s processing flowsheet iseffective, which, given the conventional technology being used, Romero isquietly confident about. If customers like the high-purity manganese products,a CAPEX of US$400M is required for the Main Plant, designed to produce 50,000tof high-purity “pharmaceutical” grade manganese products for Chvaletice’s lifeof Resource, c. 20 years.

EMN’sintention to build the Demonstration Plant has opened up opportunities to havediscussions with investors on the basis of actual products rather than just theFeasibility Study. The Demonstration Plant has multiple purposes, given itspotential to trial new technologies as an R&D facility, and later to act asa training facility for new operators as the Main Plant ramps up. Typically, a DemonstrationPlant of this type would take c. 1 year to construct, followed by a trialperiod for the production of manganese products.

EMNhas signed an EPC contract with Changsha Research Institute Of Mining &Metallurgy (CRIMM), to build the Demonstration Plant, which will give them“great access to knowhow and technology.” Given nobody has built a processingplant like the one EMN is proposing since 1974, other than the Chinese, Romero istrying to reduce the risk component, albeit a small one. We got that sense fromRomero, meticulous planning and attention to detail seem to be in his DNA. Inbusiness, this counts, but so does timing, something we would appreciate thecompany having a position on.

Thenthe Main Plant will need to be constructed and made operational. So, it couldbe 4-5 years before EMN actually starts to produce revenue. Assuming they buyinto the EV and Manganese thesis, this might be a good story for investors whohave some time on their hands or have a blended approach to their investmentportfolio.

EMN intends to provide products primarily to the EV industry for NMC cathodes. The distinction is clear here: Romero talks about manganese products, not the metal. Romero claims every Western EV brand needs manganese, so the market size is well defined. The products themselves are being produced to a “higher standard than ever before,” given the environmental, reclamation and waste disposal standards of the EU in comparison to most other manganese tailings jurisdictions.

The Tesla logo in red.
Western EV manufacturers need manganese.

Whatwe find encouraging about this story is the green credentials. Not only does itfeed into the EV macro story, it is also a tailings/recovery story. It makessense ethically on multiple levels and, similar to battery recycling companies,it provides a consistency to the green energy cycle. If consumers and investorsalike are going to demand green credential are on display, they aren’t going tobe happy until the entire production-chain meets those demands. Using tailingsremoves the environmental impacts associated with mining (making an EIA much easierto attain). In addition, tailings are a much less risky investment class thanconventional mining; companies have a clear knowledge of the resource they aredealing with because it is at surface, rather than the costs associated with guessingwhere and what the scale is of the resource underground.

TheChvaletice Resource has already been mined, crushed and milled, and theresource is hosted in manganese carbonate. Carbonate ore and the tailingsdeposit provide a significantly cheaper cost and environmental advantagescompared to oxide ores.

TheChvaletice Resource is claimed by Romero to be ‘globally significant.’ Theresource has been 95% quantified over the last 4.5 years, and this has beenaided by the mineralogy of the material: very fine particles that are wellhomogenised and distributed throughout the deposit laterally. It is fullydrilled off (no more drilling is required), and EMN want to turn this Resourceinto a Reserve. There is very little variability in the ore body, and this,alongside EMN’S understanding of their resource and metallurgical performance, mayhelp provide EMN’s future plant with consistent feed.

Thereare some hurdles to overcome. They need to raise capital soon to construct the DemonstrationPlant and unlock the company’s potential. Romero was in London to speak withinvestors and strategic partners. Conversations are taking place, but itremains unclear how and when exactly EMN will announce a funding package, or whatthat will look like. We wait to hear from the company. With about USD$4M on thebooks as of Q3/19, investors will want guidance from the company about thedeliverables and actions for this year.

EMN is listed on both the ASX and TSX; Romero wanted to ensure the company had exposure to “two of the leading resource capital markets in the world.” The share register is comprised of investors from Australia (40%), Canada (40%), and Europe/Asia/North America (20%). It’s been a disappointing 12-months in terms of share performance, falling from AUS$0.44 to AUS$0.15, on poor volumes. This isn’t a case of the only way is up, but if Romero can find the cash for the Demonstration Plant this quarter and produce test samples for customers in early 2021, then Euro Manganese has the chance to capture a meaningful piece of the manganese market with a high-margin product.

Therehave been some questions in the market about the excessive size of themanagement team. Romero is very candid about cost management and was keen totalk to us about his G&A. He runs a tight ship, but for now, raisingcapital is the order of the day. EMN also needs to show investors how and wherethey sit in this EV cycle and where the money will be made? They are not aminer so they can’t afford to think like one. Partnerships, sales contracts anddistribution is where we need clarity. EMN has work to do, but for patientinvestors, this could be a good opportunity.

This is a story we’re definitely going to keep an eye on. It is the only near-term production manganese story in town, unless you know different, in which case let us know below and we will investigate….

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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