Element 25 (E25) – Manganese Macro v Strong PFS. Who wins?

Element 25 Ltd.
  • ASX: E25
  • Shares Outstanding: 98M
  • Share price A$0.49 (02.07.2020)
  • Market Cap: A$48M

Interview with Justin Brown, Managing Director of Element25 (ASX: E25).

Element 25 is an Australian manganese developer. Manganese has always been something of an enigmatic commodity, but the market recently got extremely excited about Element 25, doubling the share price overnight. The average trading volume leapt from 40,000 shares to 890,000 shares. The cause of this is the company’s recent PFS for its ‘world-class’ manganese resource at its 100% owned Butcherbird Project.

Matthew Gordon talks to Justin Brown, 2nd July 2020

The aim is to produce high-quality manganese concentrate for export markets, and the strong economics within the PFS demonstrate low capital and operating costs to produce near term cashflows and fuel further growth. The company will be into production by Q2/21. However, it will need to raise some capital to achieve this objective.

What do the numbers look like?

  1. Maiden Proved & Probable Ore Reserve of 50.55Mt at 10.3% Mn containing 5.22Mt Mn (4.28Mt Recoverable Mn).
  2. Pre-tax NPV8 of Nominal A$441M.
  3. IRR of Nominal 255%.
  4. Low CAPEX of A$14.5M plus A$9.2M working capital.
  5. Average annual operating cashflow of A$32.1M for years 1-5 in the staged approach.
  6. Simple payback period 6-months from the start of operations.
  7. Full beneficial production scheduled for next financial year.
  8. 42-year life-of-mine.
  9. Annual production and sale of 312,000tpa of medium-grade lump manganese concentrate grading 30-35% Mn.
  10. ‘Complements and enhances the plan’ to develop and Electrolytic Manganese Metal (EMM) plant.

Some encouraging numbers for what is the fastest-growing segment of the manganese market: medium-grade. If phase 1 of the company’s operations is successful, phase 2 will be “just around the corner.” I like phased approaches and early production, because it enables companies to prove a route to market, providing confidence to shareholders, and also to partially or wholly finance developments and optimisations out of cash flow rather than relying on constant dilutionary fund raises in the market. It doesn’t always work but when it does the effect is powerful.

While manganese producers may choose to push the hype surrounding the EV revolution, the primary use of manganese is in stainless steel; in fact, one can’t make stainless steel without it. Stainless steel demand is projected to continue rising and that can only be good news for Element25.

Element25 recently completed a long awaited royalty sale agreement with Canada’s Vox Royalty Corp (CVE:VOX) for a total consideration of A$500,000. Brown claims to have had other options, but he’s happy with the deal; it has given the company a nice boost for working capital purposes. In addition, Element25 has recently raised A$1 million via a controlled placement facility with Acuity Capital, in addition to the company’s RareX share sale. Element25 is now totally out of RareX.

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Now, brown needs to put the project financing in place. It remains to be seen what form this takes, with Brown claiming to be conversing with project financiers, debt facilitators, equity facilitators, off-take-related financiers, etc. Nobody is likely to finance Element25 off the back of a PFS, and a DFS looks necessary to secure anything meaningful. Handily, Element25 has A$5M in the treasury. The company will need to raise money later this year, but it is in control of the timing at this point: a crucial consideration.

The “PFS+” has significantly de-risked the technical side of the Butcherbird Project. The detailed engineering is occurring right now, and only small issues are cropping up. Things look to be running on track. The investment community is beginning to see Element25 as a genuine potential producer.

There are lots of details still to iron out, and the market will be watching to see if Brown and his team can deliver this manganese resource in the accelerated time scale proposed.

What did you make of Justin Brown and Element25?

Company Website: https://www.element25.com.au/site/content/

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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