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Element 25
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ELEMENT 25
Manganese is the twelfth most abundant element on the Earth’s crust and the fourth most traded metal globally, owing to its role as a critical raw material in multiple industries. By far the biggest consumer of manganese is the steel manufacturing sector, which accounts for around 90% of current demand. The remaining 10% goes into the production of high purity products, including electrolytic manganese metal, electrolytic manganese dioxide and manganese sulphate, which are most notably used in the manufacture of highperformance lithium-ion batteries. While this nascent segment of the market is comparatively smaller than steel at the moment, there is an expectation that as electric vehicles (EVs) and battery storage become an increasingly important part of the global energy solution, demand for high purity manganese chemicals will grow exponentially, according to Element 25 managing director Justin Brown. “We are working on both segments and are going to start by producing a product suited for steel manufacturing, but we’re also rapidly developing plans to produce battery grade chemical manganese products as well, around which quite a lot of the flowsheet development has already been done,” he says.
Listed on the ASX since 2006, Element 25 has traditionally been a diversified explorer with experience in gold, copper and nickel projects before it discovered the Butcherbird Manganese Deposit in Western Australia (WA). To demonstrate a singular focus on the project, the company changed its name to correspond with the atomic number of manganese – hence Element 25.
In addition to lodging a mining lease application for the Butcherbird project - located in the Southern Pilbara region of WA - in February 2018, Element 25 carried out a sustained programme of drilling out the resource for what is now defined as the largest onshore manganese deposit in Australia, with >260 million tonnes (Mt) of manganese ore in measured, indicated and inferred JORC
resources.
Over the last 24 months, the company focused on developing a flowsheet for the production of high purity chemical manganese products, which yielded a breakthrough in 2019. “In the process of developing the flow sheet for the high purity stuff, we identified the potential to produce an intermediate concentrate product that we can then ship to the steel markets for much reduced capital costs, which will help to drive business growth through early cash flows.
“Now we have all our approvals, we’re financed, offtakes are in place and we expect to be producing our first manganese concentrate product in Q1 of 2021, so it has been quite a journey in a short period of time.”
Attractive project attributes
While WA was ranked the best jurisdiction in the world for mining projects by the 2019 Fraser Institute Annual Survey of Mining Companies, a common challenge for project developers in the region has been inadequate infrastructure
ELEMENT 25
AT A GLANCE in some of the more remote regions of the vast state.
But Element 25 is fortunate in that its project is located in close proximity to a gas pipeline and a bitumen highway that leads all the way to Port Hedland – where the company will ship its product from. While the gas pipeline won’t be used for the stage 1 development, having access to one is a vital pre-requisite for the company’s plans to produce high purity chemical manganese products.
“The deposit itself will be very easy to mine because the geology is simple. It’s a bulk mining exercise so there’s no need for explosives, there are very low levels of deleterious elements and the beneficiation process is simple. It’s low cost and from an infrastructure point of view, it’s very well positioned.”
STOCK TICKER
ASX:E25
MARKET CAPITALISATION
A$209.56 million (as of January 08, 2021)
a j b r
At the start of December 2020, Element 25 published an updated pre-feasibility study (PFS) which included significantly improved economic metrics for the base case, while adding expansion option study results.
The initial base case PFS published in May 2020 identified an opportunity for a low capex, rapid startup operation exporting manganese concentrate with a nominal pre-tax NPV of A$441 million and IRR of 255% for a 42-year mine life.
However in the revised study, the company estimated the base case pre-tax NPV at $583 million with a higher IRR of 387%. “We increased the nameplate throughput of the plant, which improves economics. We also identified some interesting impurity attributes of the ore that are attractive to the market, which will allow us to improve the pricing model and we’ve
JUSTIN BROWN, ELEMENT 25 MANAGING DIRECTOR
reduced our operating costs,” Brown adds. $1,138 million for a 15-year period.
Expansion plans
In addition, the metrics for the expansion cases 2 and 3 are even more attractive. The pretax NPV for the expansion Case 2 is estimated at $926 million for a 20-year mine life, while expansion Case 3 will generate than an explorer is a fantastic milestone for the company.”
What’s more, the cashflow generated from the first stage of production will directly contribute to the funding of the expansion stages of the project. The base case uses only 20% of the resource, so expansion is inevitable, according to Brown.
“The critical thing for us was to get a low capex Stage 1 opportunity up and running and then we can leverage off the cash to drive stages 2, 3 and beyond.
“Ultimately, we will move past the concentrate export business into the lucrative high purity battery grade chemical manganese segment to feed the growing demand from the world’s transition to EVs.”
“Ultimately, we will move past the concentrate export business into the lucrative high purity battery grade chemical manganese segment to feed the growing demand from the world’s transition to electric vehicles.” Justin Brown, Element 25 managing director
These eye-watering numbers for the expansion cases have been calculated in line with the company’s longer-term plan to build a high purity manganese sulphate plant for the production of battery grade manganese chemicals.
But, choosing to keep his feet rooted firmly on the ground, Brown is quick to acknowledge the remarkable achievement of the Element 25 team ahead of the imminent commissioning of Stage 1 of the Butcherbird project.
“We’re about to deliver a mining project in WA much faster than anyone else has done in the past,” he says.
“It’s often a five-year journey to develop a project of this type. We’ve done it in a little over 12 months if we can hit our target. Becoming a revenue generating producer rather
Obtaining offtake
Being a relatively unproven player in the manganese market as a whole, securing
reliable offtake customers for its manganese products has been a key mission for Element 25, and a successful one at that.
The company has secured a five-year take-or-pay offtake agreement with ASX-listed OM Holdings for 100% of its first phase of production, up to 365,000 tonnes per annum of manganese concentrate. Brown recounts his pleasant surprise at the appetite for Element 25’s products, including beyond Stage 1.
Element 25 also recently agreed non-binding offtake terms with Singapore-based Semeru Energy for 50% of the production from the Stage 2 expansion to a maximum of 200,000 tonnes per annum. “We are seeing further pentup demand for offtake from stages 2, 3 and beyond, so the demand side looks really good at the moment.”
Demand for high purity battery metals has been buoyed recently by a wave of policy commitments centred on the decarbonisation of key industries in major economies around the world.
The electrification of vehicles is a major part of plans for a global ‘green industrial revolution’, with Tesla the
runaway leader in the EV market. During its highly anticipated Battery Day in September, the technology behemoth announced a new nickel-manganese cathode for higher end vehicles.
This, along with the fact that several competing automakers are set to follow suit, bodes incredibly well for manganese chemicals demand going forward, according to Brown. A synchronised shift towards higher manganese content in EV batteries will also play perfectly into the hands of Element 25, with its long-life project located in the ‘safe as houses’ jurisdiction of WA.
“Traditionally, Western Australian producers have relied on China as the end point for their commodities, but I think that’s evolving. We can see opportunities in supply chains that stretch from Butcherbird to Malaysia, Japan, Korea, North America and Europe. A non-China dependent diversified supply chain is going to be really important to us.”
Limitless growth potential
Element 25 is on the brink of delivering the first phase of its large-scale Butcherbird project in WA. First production of manganese concentrate for the export market in Q1 will drive the company into positive
revenue territory for the first time since the company’s inception.
This fast-approaching milestone has been well received by the markets, but this is only just the beginning for Element 25, with expansion cases geared towards high purity manganese chemical production showing NPVs and IRRs far in excess of the base
case.
“From 2023 onwards, you’ll see that hockey stick growth curve that everyone talks about really take off for battery chemicals,” Brown predicts. “We are positioning Element 25 and Butcherbird to take full advantage of that.
“Having a project that can deliver into the supply chain for locally produced batteries in WA is going to be really exciting, but I think these megafactories under construction in Europe, Asia and North America are going to be really important customers as well. “With a 260 Mt resource we’ve got huge potential to expand. There are amazing metrics on the base case and the expansion cases as well. Beyond that, there is almost limitless growth potential.”
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