AISRESOURCESLIMITED–Manganese,thethirdelectricvehiclemetalnooneistalkingabout CONFIDENTIAL

Manganese–thethirdelectricvehiclemetalnooneistalkingabout

March24,2017|BaseMetals,BatteryMetals

Highlights•Manganeseisacriticalandirreplaceableelement

usedinsteelproduction;•Thesteelindustryispoisedtocontinuegrowing,

providingasteadysourceofdemandformanganese;•Significantadditionalupsidewillcomefromclean-

energyapplications;•Vertically-integratedcompanieswillbeprimary

driversoftheforwardmomentuminthemanganeseindustry,whichatthispointisconcentratedandinneedofdisruption.

Lithiumandcobalthavebeenonanabsolutetear,ridingthewaveofTeslaandthebroaderelectricrevolution.Thereisanothermetal,however,usedwidelyasabatterycomponentthathasreceivedlessnoticefromthemarkets.Thatmetalismanganese(Mn),achemicalelementthatisnormallyfoundtogetherwithiron.

Sincethebeginningof2016,cobalt’spricehasjumped120%,lithiumhasmovedup77%,andmanganesehasrecordeda42%gain.Whileallthreemetalshaveseentheirpricesriserecently,itappearsthatmanganesehasbeenoutshinedbyitstwofellowEVmetalcounterparts.

AISRESOURCESLIMITED–Manganese,thethirdelectricvehiclemetalnooneistalkingabout CONFIDENTIAL

Webelievethissituationwillchangequickly,asdemandformanganeseissettooutpacesupply,especiallyforhigher-gradematerialsfoundonlyinspecificcornersoftheglobe.

Introduction–ManganeseIsCriticalManganeseisanessentialingredientinsteel.AndaccordingtotheUSGeologicalSurvey’s(USGS)MineralResourcesProgram,theUnitedStatesiscompletelydependentonmanganeseimports;ithasnoproductionfacilitiesofitsown.TheUSneedsabout500,000tons(1.1billionpounds)ofmanganeseperyear,themajorityofwhichisconsumedbythesteelindustry.

Acutelyawareofthissituation,andthefactthatmostoftheworld’smanganeseisproducedbyjustafewcountries(someofwhichareriskyjurisdictions),theUSGShasdeemedmanganesea“criticalmineral.”Acriticalmineralisonedefinedasbeingessentialtotheeconomy,aswellasbeingatsignificantriskofincurringsupplyinterruptions.TheUSGShasalsosingledoutmanganesebecauseofitsimportanceduetoitsincreasinguseinemergingtechnologies.

SolidGrowthInDemandInsteelproduction,manganeseservestheimportantfunctionofremovingoxygenandsulphurwhenironoreisconvertedintoiron.Itisalsousedasanalloythatincreasesboththestrengthandflexibilityofsteel.Inoreproduction,about30%ofthemanganeseisusedtorefineoreandabout70%isusedasanalloyinthefinalproduct.

Manganeseisnotontheradarofmanyinvestors,butitiswidelyusedinmetallurgy.Infact,itisthefourthmostcommonlyusedmetalbytonnage–afteriron,aluminum,andcopper.Andduringthepasttenyears,theworldhasgenerallyproducedincreasingamountsofsteeleveryyear.

Betweennowand2020,theInternationalManganeseInstituteprojectsthattheglobalsteelindustrywillcontinuegrowingataclipofabout2%annually.

TheUnitedStatesisexpectedtoleadthewayin2017,withaprojected4.4%increaseinsteelproduction.ThisnumberisexpectedtosurgeevenfurtherasPresidentTrumpturnshisattentiontowardspushinglegislationfora$1trillioninfrastructureplan.

Inadditiontothesteelindustry,manganeseisalsoutilizedinanimalfeedandfertilizers,twosectorswithdemandthatwillcontinuetogrowinconcertwiththeworld’spopulation.

Movingforward,weseesignificantgrowthinthemanganesemarketduetoitsapplicationsincleanenergy.Morespecifically,weanticipatethegrowinguseofnickel-metalhydride(NiMH)electricvehiclebatteriesandlithium-ion(Li-ion)batteriestobemajorcatalystsformanganesedemand.NiMHbatteriesarepredominantlyusedinhybridvehicles,includingtheToyotaPrius.TheLi-ionbattery,ofcourse,takescenter-stageduetoTesla’snotorietyandloftyproductiontargets.

Thenewestup-and-comingtechnologytousemanganeseistheso-calledlithiatedmanganesedioxide(LMD)battery.AtypicalLMDbatteryuses61%ofmanganeseinitsmixandonly4%lithium.LMDshavenumerousbenefits,includingprovidinghigherpoweroutput,thermalstability,andimprovedsafetycomparedtoregularlithium-ionbatteries.

LMDsarealreadyinproduction,andarecurrentlyused

AISRESOURCESLIMITED–Manganese,thethirdelectricvehiclemetalnooneistalkingabout CONFIDENTIAL

inelectriccarsliketheChevyVoltandNissanLeaf.Thesecheaperelectriccars,asopposedtothenarrowerluxury-segmentthatTeslaoperatesin,shouldbeasignificantpartofthebuddingcleanenergyrevolution.

Finally,thereisagame-changingapplicationofmanganeseworthmentioning:off-the-gridpower.TeslaanditsPowerwallbatteriesarebreakinggroundhere,andthemarketisonlypoisedtogrow.

(Credit:InsideEVs)

Insummation,thereareseveraldriversthatshouldboostmanganesedemand,bothtraditionalandcuttingedge.

Manganesewillcontinuetobeakeyelementinsteelproduction,andtheindustryshouldcontinuetogrowatasteadypace.Steelproductionwillensurethatmanganeseremainsasoneofthemostwidelyusedelementsintheworld.Onthetechnologyside,electricvehicles,off-the-gridpowersystemsandotherenergystorageapplicationswillrequiresignificantamountsofhigh-qualitymanganese.

RiskyBusinessOnTheSupplySideMostmanganeseproductiongloballyisconcentratedinfourcountries:Australia,China,Gabon,andSouthAfrica.90%oftheworld’smanganesereservesarefoundinthesefourcountries,alongwithBrazilandUkraine.Remarkably,nearly70%ofglobalmanganesereservesarecontainedintheKalahariDistrictofSouthAfrica.

(Source:USGS)

SouthAfrica’sdepositstendtobehigh-grade.Australia,Gabon,andBrazil,however,featureevenhighergradedeposits.Thisbodeswellfortheexplorersanddevelopersoperatinginthesecountries.

(Source:Manganese.org)

IntheUnitedStates,therehasnotbeenanymanganeseminingactivitysince1970.Thereareafewareaswhereitispossibletofindmanganese-enrichedrocks(MaineandMinnesota),butthegradesaresubstantiallylowerthanwhatisavailablearoundtheglobe,sominingmanganeseintheUnitedStatesdoesnotmakeeconomicsense.Asaresult,theU.S.importsallofitsmanganese.

AISRESOURCESLIMITED–Manganese,thethirdelectricvehiclemetalnooneistalkingabout CONFIDENTIAL

61%oftheUnitedStates’manganeseimportscomefromGabon.Australiaisthesecond-largestproviderofmanganesetotheU.S.,with21%ofthetotal.SouthAfrica(7%)andBrazil(5%)arethethirdandthefourthlargestmanganeseexporterstotheUnitedStates.

China,meanwhile,istheworld’snumbertwoproducerofmanganeseandalsooneofitslargestconsumers.DemandforimportedmanganeseoreinChinamorethandoubledbetween2006and2016.Asof2016,almosttwo-thirds(62%)ofmanganeseoreinChinawasimported.ThegulfbetweenmanganeseproductionandconsumptioninChinahasbeenwideningsince2001.

China,liketheUnitedStates,importsmostofitsmanganesefromSouthAfrica,followedbyAustralia,Gabon,andGhana.

Unlikesteel,wheredemandisnotoriouslysteady,thesupplyofmanganeseisdeclining.In2016,theUSGSestimatedthattheworldproduced8.6%lessmanganesethanin2015.

(Source:USGS)

Thisisoneoftheimbalancesthatresultedintherecentupwardpriceactioninmanganese.Thepriceofmanganesehasrisenover42%sincethebeginningof2016.

Theestimateddemandformanganesein2022isforecastedtoreach28.2millionmetrictonnes.Comparethistohistoricalratesofmanganeseproduction,whichpeakedin2014at18.0millionMT.Clearly,thewideninggapbetweensupplyanddemandinthemanganesespaceshouldleadtoahealthypriceincreaseoverthenextfewyears.Webelievethatonemanganeseexplorer,inparticular,ispoisedtotakeadvantageofthisdynamic,anditsmanagementteamalreadyhasoneexitundertheirbeltinthemanganesesector.

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