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After
working in the gold mining industry for many years, consultant Ken Reser has turned his attention to special opportunities
in minerals of strategic importance to North America and Europe. In 2004, he
developed an early interest in molybdenum as a vital resource, and then in
2007 became intensely interested in manganese as an element that would gain
prominence due to the unique properties that make it irreplaceable in the
manufacture of steel. Also, its growing importance in nascent battery
technology will revolutionize development of electric and hybrid automobiles.
In this exclusive interview with The Gold Report, Ken shares
some thoughts on the significance of manganese and how investors might play
growing demand for the metal.
The Gold Report: What makes manganese desirable in
a commercial sense?
Ken
Reser: It's been a U.S. Defense
Department-designated strategic metal since World War II. It's a critical
supply chain mineral for the steel and aluminum industries, as well as many
other key industries. And there's a lot of new technology relating to
manganese-rich (electrolytic manganese) lithium-ion batteries for electric
and hybrid cars, as well as many other battery uses. It's a metal that's
rapidly transitioning through new discoveries and new uses.
TGR: So, advances
in technology continue to create new opportunities for use of this element?
KR: Exactly.
Manganese raw ore is basically $0.18/lb., but electrolytic manganese metal
(EMM)—pure manganese metal—is roughly $1.65/lb. It was $2/lb. and
higher back in 2007–2008. The thing that people are missing in the
manganese story has to do with North American domestic supply—there is none. . .period. Just as China is safeguarding its own
domestic supply of rare earth elements (REEs), electrolytic manganese and
various other minerals, North America should be doing the same.
North
American end users are paying China because it controls over 97% of the
world's supply of EMM. All the end users in North America, for example, are
paying the transoceanic shipping costs of raw ore from places like Africa,
Brazil, Australia and Russia. They're paying for finished products to be
shipped across the oceans, and then China charges a 20% export tax and the
U.S. charges a 14% import tax. So, it's not a very level playing field for
North American end users. I might also mention that about 40 years ago, the
United States produced more steel than the rest of the world's countries
combined, but now it's in number five position. The world is growing rapidly,
and you can't make steel without manganese and without steel production the
world stops.
TGR: And, clearly
steel is the primary current manganese growth driver?
KR: Yes, I believe
the steel industry consumes roughly 47% of the electrolytic manganese supply,
aluminum another 32% and electronics 14% and the rest in fertilizer and
chemicals. A steel company metallurgist explained to me once that if you
didn't put 10–20 lb. of manganese into each ton of steel (depending on
the type of steel that you were forging), a 4 ft. x 8 ft. sheet of steel an
inch thick dropped onto a cement floor would shatter like a piece of glass.
TGR: With
development of new manganese-rich cathode technology for batteries, is it
possible that those uses for manganese could outstrip its use for steel?
KR: Well, that's
kind of forward-looking. I don't know if it would outstrip it, but it's
definitely going to add a large component. Both the U.S. and Japan have the
technology for these batteries, and EMM is a key component. I think actually
65% of the battery component is electrolytic manganese.
TGR: How far along
is manganese battery technology now?
KR: The Chevrolet
Volt is already utilizing this lithium-ion manganese rich battery at present.
MIT is developing another battery technology for wind farms, and these are
container-size batteries that are liquid. There is liquid antimony in the
lower portion of this battery, and a proprietary catalyst in the middle.
There is molten magnesium on top. They state that a farm of these batteries
can supply the power for a small city. Of course, the power is generated by
wind farms. I'm assuming that the same can be done with solar farms.
Magnesium is another key critical metal that I have recently started writing
about and of which the U.S. has only one small domestic supplier.
TGR: This is an
issue of greater power capacity. Is that correct?
KR: Yes,
lithium-ion manganese rich batteries can store power about five times longer.
Because of the electrolytic manganese-rich cathode, they can use about 50%
less batteries in EVs and thus gain a weight, as well as a capacity,
advantage.
TGR: If you can
store five times the amount of electricity, you can come closer to supplying
a sustained baseload of power.
KR: Yes, exactly.
This other magnesium battery by MIT is for wind farms. It is in early stages
but it's something that I'm following quite closely.
TGR: Ken, the spot
price of electrolytic manganese has doubled over the past five years. Still,
even at $1.65/lb., it sounds plentiful and inexpensive to get out of the
ground and process into the EMM.
KR: Well,
manganese is a very common element so there's lots of it. There are various
types of ores—carbonate and oxide ore. The carbonate ores are more
expensive for extraction to pure metal. A mix of toxic chemicals is used, as
well as multiple grinding and crushing processes that aren't used or needed
in a clean (of impurities) oxide ore.
The
key thing I focus on is the fact that the U.S. has no domestic supply
and only three companies currently have manganese projects in North America;
one is in Canada and two are in Arizona. In North America, this EMM can be
produced much more cheaply by one of these companies than it can in China where
electrolytic manganese costs roughly $1/lb. to produce. If it's sold at
$1.65/lb. and taxed at 20%, and then the U.S. adds a 14% import tax, this
leaves American end users at a disadvantage.
TGR: Well, there's
clearly an arbitrage opportunity here and that would be to build production.
KR: Exactly.
TGR: So, how finite
is the commodity?
KR: Manganese
itself isn't that finite at all but oxide manganese ore deposits are much
less common. Manganese is the fourth-most traded metal in the world. The overall
manganese ore industry is growing at about 8% per year and electrolytic
manganese demand has been growing at 26% each year for the last
five—that shows the huge growing demand for it.
TGR: You said
manganese is a strategic metal, which implies there are no substitutes for
its uses.
KR: Yes, that's
correct. There is no substitute for manganese in its many applications.
TGR: And you
believe there will continue to be new uses for the metal?
KR: I do.
TGR: How do you
quantify manganese dependence in the U.S. and the rest of North America?
KR: 100%,
unequivocally 100%. The U.S. does some recycling, but that's marginal.
TGR: Is this
dependence situation the same in the EU and other parts of Asia outside of
China?
KR: Yes. Russia
has its own ore deposits, and it's closer to China than North America.
Shipping of ore and finished product would be less expensive from China to
Russia than it would be from China to North America.
TGR: Is the
manganese industry nationalized in China, or is it just nationalized by
virtue of the export tax?
KR: It's both. The
country has both nationalized as well as private operations. But the
country's actually closing down a lot of the electrolytic manganese plants
simply because of its pollution factors. I think we're going to see an
amalgamation of some of these state-owned and private companies as we move
forward.
TGR: This is a
China story in so many ways. The country creates demand with its
infrastructure buildout and is the great producer
of manganese with a tremendously unfair advantage.
KR: Yes, we see
China putting export limits on rare earths and many other minerals. It's just
simple mathematics. The country wants that product for its own domestic use;
so, it's not going to sell it to the rest of the world, and then find itself
with a shortfall. The developing world is growing rapidly, and it isn't just
China—it's also India, Brazil and Russia. The rest of the world wants
to move into the 21st century and will move ahead regardless. Whether North
America grows with it or not, that move ahead is going to place huge demands
on a developing world for all kinds of different minerals.
TGR: Do you expect
to see an exponential rise in the price of manganese over, say, the next
decade?
KR: Oh, I believe
the price of electrolytic manganese is definitely going to climb because
there will be new discoveries and new uses, and China is running out of ore.
There are just so many changes. I follow the area of patent applications
quite closely and maybe once a month, or once every couple of months, there's
a patent application for some new use of EMM.
TGR: What are the
cash costs for manganese in North America?
KR: Well, the only
company that has revealed a cash cost is American
Manganese Inc. (TSX.V:AMY, OTCPK:AMYZF), and it's
expecting an EMM cash cost of $0.44–$0.45/lb. In China, electrolytic
manganese costs $1/lb. plus shipping costs, and then you have the 20% export
tax and a 14% U.S. import tax.
TGR: Well, at a
$1.65/lb. spot price, that would be a very generous margin for American
Manganese.
KR: Yes, the
company has a tremendous benefit there. According to the USGS, American
Manganese's Arizona deposit at Artillery Peak is an oxide ore. It's a friable
ore, which, in geological or mineralogical terms, means it's very soft and
doesn't require multiple milling and grinding processes, roasting process or
toxic chemicals. It also has a low water use with benign tailings. The key
component to the low cost is a process perfected by Kemetco
Research Inc., which is under patent application by American Manganese. The
complete Kemetco Process can be viewed here.
TGR: There were two
other North American companies.
KR: I've spoken
with the management of Wildcat Silver Corp. (TSX.V:WS) and Buchans Minerals
Corporation (TSX.V:BMC), and I think they both have very robust
projects. Wildcat Silver, for example, has about 120 million ounces (Moz.) of
silver and its deposit contains zinc, as well as a manganese grade of
7%–8%.
In
the case of Buchans Minerals, I believe it has a 7%
or 8% average grade of manganese, as well as 12% iron. Both companies'
deposits appear very large. I suspect its costs will be quite a bit higher
than American Manganese's Artillery Peak project, as it has multiple grinding
and milling and separation processes that will require roasting and use of
chemicals because they are not oxide ores and do contain byproduct minerals.
TGR: American
Manganese is up 196% over the past three months. Wildcat Silver is up 130%
and Buchans is up 31% over the same period. Is
there still upside on these?
KR: Oh, I believe
so. These companies have a long way to go, but American Manganese has already
identified approximately 15 billion pounds (Blb.)
of EMM with a lot more drill work yet to be done. Buchans
Minerals is in the early stages of its discovery work. Wildcat Silver is
primarily a silver deposit, and it just closed a $13 million private
placement with Silver Wheaton Corp. (TSX:SLW; NYSE:SLW) that gives SLW
first refusal on any rights Wildcat might want to sell from its Hermosa
property in Arizona [formerly known as the Hardshell
property]. Wildcat is primarily a silver play with a potential carbonate
manganese byproduct.
TGR: Among these
three companies, does one have any greater advantage over the others?
KR: Well, I would
say yes. I've been consulting for American Manganese for some time now and I
know what its project entails. It's much more advanced and it's
open pit. The ore is amenable to sulfurous acid leaching and doesn't require
the multiple grinding and crushing circuits, the roasting of ore or hazardous
chemicals, therefore, it has benign tailings. So, you could say that it's a
very environmentally friendly process. AMY's putting up a pilot mill this
spring to bulk test the process. Also, it has a lot more drilling to do
because it appears the company's 15 Blb.
EMM resource can be greatly expanded. The company has recently contracted
with Wardrop to complete an NI 43-101
prefeasibility study.
TGR: I have really
enjoyed meeting with you. Thank you for taking the time with us today.
KR: Thank you for
having me.
Ken
Reser, an independent mining consultant, has over
20 years of direct involvement in the gold mining market industry, as well as
having been a placer gold miner for a number of years in Yukon and British
Columbia. Since 1990, he has had significant investor and public relations
experience with junior base metal miners, gold, diamond and oil explorationists. Ken has consulted on gold exploration
and prospecting projects in Ghana and Bolivia, as well as having staked his
own extensive mineral claims in Lac De Gras, NWT, British Columbia and Yukon.
He is a founding member of the Gold Anti-Trust Action Committee (GATA) and he
is presently involved in an R&D consulting capacity for various Canadian
junior mining companies. Since 2005, he has been actively writing mining
editorials on various topics, including molybdenum, manganese, magnesium and
gold. Ken can be contacted at 403-844-2914.
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DISCLOSURE:
1)
George Mack of The Gold Report conducted this interview. He personally
and/or his family own shares of the following companies mentioned in this
interview: None.
2)
The following companies mentioned in the interview are sponsors of The
Gold Report: American Manganese and Wildcat Silver.
3)
Ken Reser: I personally and/or my family own shares
of the following companies mentioned in this interview: American Manganese
Inc. I personally and/or my family am paid by the
following companies mentioned in this interview: American Manganese Inc.
The Gold
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