Post on 31-Dec-2020
Euro Manganese IncorporatedSpecialty Minerals and Metals
Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.
6 February 2019
SPECULATIVE BUYPRICE TARGET A$1.10Price (5-Feb)Ticker
A$0.28EMN-ASX; EMN-TSX
52-Week Range (A$): 0.16 - 0.33Market Cap (A$M): 48.7Shares Out. (M) : 170.7Enterprise Value (A$M): 38.3NAV /Shr (5%) (A$): 2.30Net Cash (A$M): 10.4P/NAV (x) (A$): 0.27Major Shareholders: Terra Capital (9.1%)
Tribeca Investment Partners (5%)
FYE Sep 2018A 2019E 2020E 2021EEBITDA (C$M) (6.4) (8.9) (9.2) (5.1)Net Income (C$M) (14.2) (8.8) (9.1) (5.1)
0.34
0.32
0.3
0.28
0.26
0.24
0.22
0.2
0.18
0.16
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
EMN
Source: FactSet
Priced as of close of business 5 February 2019
Canaccord Genuity (Australia) Limited has received a fee asthe Lead Manager to the Euro Manganese Inc Initial PublicOffer in September 2018.
Larry Hill | Analyst | Canaccord Genuity (Australia) Ltd. | larry.hill@canaccord.com.au | +61.2.9263.2745Eric Zaunscherb, CFA | Analyst | Canaccord Genuity Corp. (Canada) | ezaunscherb@cgf.com | 1.416.869.7299
Initiation of Coverage
Czech mate! - Positioning the Manganese pieceStrategic asset under the radar: EMN's primary asset is the 100% owned ChvaleticeManganese (Mn) Project (CMP) in the Czech Republic. The project has excellentinfrastructure access, low cost base (taxes, transport, power) and is within the epicentreof a burgeoning European lithium ion battery (Li-B) manufacturing hub. As Europe'sonly sizeable Mn deposit, the CMP is a strategic asset with the potential to serve thecommitments to fleet electrification of some of Europe's major automotive companies(currently nine battery and twelve EV factories in construction).In a market where product purity, traceability and extraction process are increasinglyscrutinised by potential offtake customers, we view the CMP as demonstrating thecredentials to be a key supplier in a high growth market.Attractive project economics highlighted in recent PEA: The CMP hosts 27Mt at 7.33%Mn (98%M+I) of waste tailings (no previous Mn recovery performed) that are proposed tobe recycled with minimal environmental footprint to produce ultra high purity manganese(>99.9% Mn) products. A recent PEA indicated the potential for a 25 year operationproducing ~50ktpa of high purity (>99.9%Mn) electrolytic manganese metal (HPEMM)with 65% to be converted to a sulphate product (HPMSM), used in the manufacture ofNickel-Manganese-Cobalt cathode materials for Lithium-ion batteries (Li-B).Low site operating costs (US$2,500/tMn) combined with high purity price premia (LTpricing of US$4,617/t for HPEMM and US$2,666/t for HPMSM) offer potential EBTIDA of+US$150m pa and a payback period of ~4 years, with total project capex at US$404m.As part of ongoing DFS work (due Q1’20) EMN have formed an MoU with ChineseEngineering major CINF to deliver a turn key EPCC package for the CMP. This EPCCpackage is intended to be an alliance model that in our view will reduce cost and timingrisks, as well as providing EMN with more certainty on project financing.High purity Mn: The forgotten battery metal but for how long? While Mn is the fourthmost shipped ore globally (60mtpa) product markets are clearly demarcated betweentraditional ferroalloys (90% of ore demand) and specialty products (10% of ore demand).Speciality chemicals consumers are less price sensitive, with the ability to achieverequisite purity fundamental in product acceptance. This is increasingly apparent in theLi-B sector where a rapid migration to ternary (NMC) cathode (CGe 8x growth by 2025)is occurring where Mn comprises <2% of input costs. The desire to thrift on higher costmetals (Co, Ni) while also pursuing higher performance will in our opinion, heightenpurity standards of Mn inputs.We understand that only Mn produced as HPEMM (+99.9% Mn) can effectively respondto forecast cathode demand (CGe 5x growth by 2025). With substantial technicalchallenges for incumbent Chinese EMM (i.e Selenium use), we view EMN as wellpositioned to enter the market in 2022 at a time of material product deficit.Valuation and RecommendationOur A$1.10/sh. price target is based on a NAV/share approach, applying a multiple of0.4x to our project NPV12% of C$523m to account for development, permitting andfinance risk. We have diluted our NAV for assumed new equity (C$10m at A$0.30/sh)over H2’19 to progress works. With an implied upside of +300% to our target price, weinitiate coverage with a SPECULATIVE BUY rating.
For important information, please see the Important Disclosures beginning on page 43 of this document.
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Figure 1: EMN Financial Summary
FINANCIAL SUMMARYEuro Manganese EMN:ASX EMN:TSXAnalyst : Larry Hill
Date: 4/02/2019
Year End: September
Market Information Company Description
Share Price A$ 0.30 C$ 0.27
Market Capitalisation A$m 51.2 C$m 46.1
12 Month Hi A$ 0.33 C$ 0.44
12 Month Lo A$ 0.16 C$ 0.15
Issued Capital m 170.7
Options m 21.2 Profit & Loss (C$m) 2018a 2019e 2020e 2021e 2022e 2023e
Future Equity Raised m 35.1 Revenue 0.0 0.0 0.0 0.0 0.0 200.7
Future Diluted m 227.0 Operating Costs -2.6 0.0 0.0 0.0 0.0 -89.7
Valuation C$m Equity Mutiple A$m A$/share Corporate & O'heads -1.9 -7.9 -8.2 -4.1 -8.3 -8.3
Chvaletice NPV @ 12% 523.6 100% 0.4x 221.4 0.98 Exploration (Expensed) -1.9 -1.0 -1.0 -1.0 -1.0 -1.0
Investments - - - EBITDA -6.4 -8.9 -9.2 -5.1 -9.3 101.6
Corporate (6.3) (6.6) (0.03) Dep'n 0.0 0.0 0.0 0.0 0.0 9.5
Cash and equivalents 10.4 10.9 0.05 Net Interest -0.1 0.1 0.1 0.0 -8.8 -12.7
Future Equity Raised 10.0 10.6 0.05 Other 0.0 0.0 0.0 0.0 0.0 1.0
ITM Options 3.1 3.3 0.01 Tax 0.0 0.0 0.0 0.0 0.0 15.1
TOTAL Net Asset Valuation 537.7 239.5 1.04 NPAT (reported) -14.2 -8.8 -9.1 -5.1 -18.1 64.3
Price/NAV 0.29x Abnormals 0.0 0.0 0.0 0.0 0.0 0.0
Target Price 1.10 NPAT -14.2 -8.8 -9.1 -5.1 -18.1 64.3
Assumptions 2018a 2019e 2020e 2021e 2022e 2023e EBITDA Margin nm nm nm nm nm 51%
EMM (99.7%) (US$/t) 2,323 2,315 2,260 2,238 2,353 2,482 EV/EBITDA nm nm nm nm nm 2.4x
HPEMM (US$/t) 5,963 4,617 4,617 4,617 4,617 4,617 EPS -$0.01 -$0.01 -$0.01 $0.00 -$0.01 $0.05
HPMSM (32% Mn) (US$/t) 3,320 2,666 2,666 2,666 2,666 2,666 EPS Growth nm nm nm nm nm nm
PER -28.7x -24.7x -30.5x -81.2x -22.9x 6.5x
Sensitivity Dividend Per Share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Dividend Yield 0% 0% 0% 0% 0% 0%
Cash Flow (C$m) 2018a 2019e 2020e 2021e 2022e 2023e
Cash Receipts 0.0 0.0 0.0 0.0 0.0 190.7
Cash paid - suppliers/labour -6.5 -7.9 -8.2 -4.1 -8.3 -98.0
Tax Paid 0.0 0.0 0.0 0.0 0.0 -15.1
Net Interest 0.0 0.1 0.1 0.0 -8.8 -12.7
+/- Working cap change 1.5 0.0 0.0 0.0 0.0 55.0
Operating Cash Flow -5.0 -7.8 -8.1 -4.1 -17.1 119.8
Exploration and Evaluation 0.0 -2.0 -2.0 -2.0 -2.0 -2.0
Capex 0.0 -1.4 -15.1 -166.5 -143.9 -144.3
Other -0.4 0.0 0.0 0.0 0.0 0.0
Investing Cash Flow -0.4 -3.4 -17.1 -168.5 -145.9 -146.3
Debt Drawdown (repayment) 0.0 0.0 20.2 0.0 200.4 0.0
Share Capital 12.9 10.0 40.0 141.2 0.0 0.0
Dividends 0.0 0.0 0.0 0.0 0.0 0.0
Financing Expenses 0.0 0.0 0.0 0.0 0.0 0.0
Financing Cash Flow 12.9 10.0 60.2 141.2 200.4 0.0
Opening Cash 2.9 10.4 9.2 44.1 12.7 50.2
Increase / (Decrease) in cash 7.5 -1.2 35.0 -31.4 37.5 -26.5
Production Metrics 2018a 2019e 2020e 2021e 2022e 2023e FX Impact 0.0 0.0 0.0 0.0 0.0 0.0
Chvaletice Closing Cash 10.3 9.2 44.1 12.7 50.2 23.8
HPEMM 0 0 0 0 0 25,828
HPMSM as Mn 0 0 0 0 0 8,351 Op. Cashflow/Share -$0.04 -$0.04 -$0.02 -$0.01 -$0.05 $0.35
HPMSM 0 0 0 0 0 25,689 P/CF -6.9x -7.9x -12.8x -25.4x -6.1x 0.9x
EV/FCF nm nm nm nm nm -9.3x
C1 Costs (US$/t) 0 0 0 0 0 2,316 FCF Yield -11% -22% -49% -337% -318% -52%
All in Cost (US$/t) 0 0 0 0 0 2,765
Balance Sheet (C$m) 2018a 2019e 2020e 2021e 2022e 2023e
Production Profile Cash + S/Term Deposits 10.4 9.2 44.1 12.7 50.2 23.8
Other current assets 0.3 0.0 0.1 0.1 0.2 40.2
Current Assets 10.7 9.2 44.2 12.8 50.4 63.9
Property, Plant & Equip. 0.4 1.7 16.9 183.3 327.2 462.0
Exploration & Develop. 1.2 2.2 3.2 4.2 5.2 6.2
Other Non-current Assets 0.0 1.1 13.2 146.4 261.5 369.3
Payables 0.9 0.0 0.0 0.0 0.1 20.1
Short Term Debt 0.0 0.0 0.0 0.0 0.0 60.0
Long Term Debt 0.0 0.0 20.2 20.1 220.6 160.5
Other Liabilities 0.8 2.6 14.7 148.0 263.2 436.1
Net Assets 10.5 11.7 42.5 178.6 160.5 224.7
Shareholders Funds 20.0 30.0 70.0 211.1 211.1 211.1
Reserves 1.5 1.5 1.5 1.5 1.5 1.5
Retained Earnings -11.0 -19.8 -28.9 -34.0 -52.1 12.1
Total Equity 10.5 11.7 42.5 178.6 160.5 224.7
Reserves & Resources Mt Mn% Sol. Mn% Mn (kt) Sol. Mn (kt) Debt/Equity 0% 0% 48% 11% 137% 71%
Resources (100%) Net Debt/EBITDA 2.1x 1.2x 3.0x -1.8x -10.0x 1.6x
Measured 26.50 7.32% 5.86% 1,940 1,553 Net Interest Cover nm nm -45.8x -12.9x -0.9x 7.1x
Indicated 0.46 7.85% 6.05% 36.42 28 ROE -135% -76% -21% -3% -11% 29%
Total 26.96 7.33% 5.86% 1,976 1,581 ROIC -500% -173% -27% -2% -3% 7%
Book Value/share $0.09 $0.06 $0.12 $0.52 $0.46 $0.65
Source: Factset, Company reports & Canaccord Genuity estimates
Euro Manganese (ASX:EMN) is a mineral exploration company incorporated in Canada and 100% ow ns the
Chvaletice manganese project in the Czech Republic. A Preliminary Economic Assessment (PEA) w as released in
Jan'19 highlighting the potential for ~50ktpa of production over a 20 year mine life of High Purity electrolytic
Manganese Metal (HP EMM) that is expected to command pricing premia from potential customers in the lithium ion
battery sector.
SPEC BUYA$1.10
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
-30% -20% -10% 0% 10% 20% 30%
HPEMM Price HPMSM Price Processing Cost (US$/t) Exchange Rate ((C$:US$)
0
500
1,000
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2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e 2034e
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/t)
Mn
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HPEMM HPMSM as Mn All in Sustaining Cost Onsite costs (C1)
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 2
3
Investment Highlights
Figure 2: The Li-ion battery (Li-B) market is expected to grow ~5x over the
next 7 years. The electric vehicle industry is expected to be the principal
segment of demand – predominately requiring NMC (Nickel-Manganese
(Mn) -Cobalt) ternary cathode formulations.
Figure 3: High purity Mn (~50ktpa) is a distinct sub sector of the
overall ~20Mtpa Mn market. Only sulphate (HPMSM) or electrolytic
metal (HPEMM) can provide the requisite purity for battery cathode
material. EMM’s flowsheet is expected to produce both.
Source: Company Reports, Canaccord Genuity estimates Source: CMP GROUP (as referenced to Cairn ERA) 2019
Figure 4: Mn is <2% of input cost in NMC, however Mn purity will need
to be elevated to preserve safety/output as nickel content increases. Figure 5: The overall high purity Mn market is mature (~$2B in revenue,
2018) with Li-B offering a key growth segment (~17% CAGR to 2025).
Source: Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates
Figure 6: From 2022 EMN transitions towards HPMSM production to
capture improved margins and market growth. Figure 7: Strategically located with no fewer than nine battery
factories and twelve EV factories under construction in Europe.
Source: Company Reports, Canaccord Genuity estimates Source: Company Presentation
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2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e
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LCO LMO LFP NMC NCA
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7% 13%
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Ni-2018 Ni-2025 Co-2018 Co-2025 Li-2018 Li-2025 Mn-2018 Mn-2025
Mark
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ize (U
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Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 3
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Table of Contents
Investment Highlights ................................................................................................. 3
Table of Contents ....................................................................................................... 4
Company Overview ..................................................................................................... 5
Corporate and Finance ............................................................................................... 7
Capital Structure ............................................................................................................. 7
Major shareholders ......................................................................................................... 7
Balance sheet & cash flow ............................................................................................. 7
Project Funding ............................................................................................................... 8
Valuation .................................................................................................................... 9
Manganese Market Snapshot .................................................................................. 11
Peer Comparisons .................................................................................................... 13
Chvaletice Manganese Project ................................................................................. 15
Location & Access ......................................................................................................... 15
Project History ............................................................................................................... 16
Geology .......................................................................................................................... 17
Project Development ................................................................................................ 20
Environmental and Permitting ...................................................................................... 20
Processing description .................................................................................................. 20
Trade off between HPEMM vs HPMSM ........................................................................ 23
Operating and Capital Costs ......................................................................................... 24
Production profile .......................................................................................................... 25
Sales and Marketing ..................................................................................................... 26
Project Timeline ............................................................................................................. 27
Appendix – Board and Management ........................................................................ 28
Appendix - Investment Risks .................................................................................... 29
Appendix - Manganese Market Overview ................................................................. 30
Supply ............................................................................................................................ 30
Demand ......................................................................................................................... 30
Appendix - EMM Market Overview ............................................................................ 33
Conventional EMM ........................................................................................................ 33
High Purity EMM ............................................................................................................ 34
Conversion of HPEMM to HPMSM................................................................................ 35
Manganese in the Lithium Ion Battery Market ............................................................ 36
Product Pricing .............................................................................................................. 39
Appendix - Investment in Czech Republic ................................................................ 41
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 4
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Company Overview
Euro Manganese (ASX:EMN) is a mineral exploration and development company
incorporated in Canada. The core business of the company is the evaluation and
development of the 100% owned Chvaletice Manganese Project (CMP) located
~90km from Prague in the Czech Republic. EMN are proposing to re-process
historic manganese bearing tailings waste that will not result in any new mining
impacts or significant waste generation.
EMN recently completed a Preliminary Economic Assessment (PEA) which
demonstrates the investment merits of the production of high purity manganese
products, namely Electrolytic Manganese Metal (EMM) and Manganese Sulphate
Monohydrate (MSM) from Chvaletice. Both products are a critical, high value
feedstock to the burgeoning lithium ion battery (Li-B) materials sector. A Feasibility
Study (FS) is due on the CMP in early 2020.
EMN was incorporated in November 2014 and negotiated an earn-in option
agreement with Mangan Chvaletice s.r.o. (Mangan), the owner of the mining rights
for the CMP. In May 2016, EMN acquired a 100% interest in Mangan for a total
net consideration of C$1.2m.
In October 2018 EMN was listed simultaneously in Canada (TSX:EMN) and
Australia (ASX:EMN) as CHESS Depositary Interests with 170.7m shares on issue
implying a market capitalisation of ~A$42m.
Overall, we view EMN possess the diverse technical, commercial and regulatory
expertise to sustain a progressive work program and bring the CMP into
production. The inherent “first mover” advantage that EMN has along with CMP’s
location bodes well for a product with a strong demand outlook.
Figure 8: Company milestones
Source: Company Reports
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 5
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Asset Summary - Chvaletice Manganese Project (CMP)
The CMP is in the western area of the Pardubice region of the Czech Republic,
approximately 90km east of Prague, on the southern shore of the Labe (Elbe)
River. The project considers reprocessing fine-grained tailings material for
production of high purity, selenium-free, >99.9% electrolytic manganese metal
(EMM) and/or high purity manganese sulphate monohydrate (HPMSM).
Previous mining activities (which produced the existing manganese-rich tailings)
was focused on the extraction of pyrite to produce sulfuric acid. Importantly,
manganese was not attempted to be recovered in the initial processing stage and
we view this as a unique opportunity compared to other process recovery
scenarios where the mineralisation could not be initially recovered due to difficult
mineralogy/metallurgy.
The project is 100% owned by EMN and with a resource of 27Mt grading 7.33%
Mn, which makes it the largest known manganese deposit in Europe (a 100% net
importing region). The PEA demonstrates a potential production rate of ~50ktpa
high purity Manganese production underpinning a 25-year mine life.
As a waste reclamation project mine life extension (through exploration) are
limited however this is clearly offset by the low surface disturbance and land
remediation benefits of the project.
The project is located within an emerging province of battery, cell, chemicals and
raw material production to serve Europe’s renowned automotive companies,
which have all made commitments to the electrification of a number of fleet
vehicles.
The CMP as an environmentally superior (i.e., waste reclamation, Selenium Free)
process and ultra-high purity product should offer EMN strategic benefits as it
progresses commercial discussions with potential customers.
Figure 9: Chvaletice is located ~90km west of Prague on the Elbe River Figure 10: Oblique view of site looking south: Three rehabilitated
tailings damns (foreground) and power station (background)
Source: Google Maps Source: Company Reports
Project Catalysts
Environmental Impact Assessment receipt – H2’19
Receipt and validation of product from potential offtake customers – CY19
Results from bulk sample pilot plant program – H2’19
Feasibility study results – H1’20
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 6
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Corporate and Finance
Capital Structure
EMN currently has 170.7m ordinary shares on issue, 12.5m options and 8.7m
warrants. The options and warrants are exercisable at varying prices and dates
between June 2019 and October 2028 as detailed in Figure 11.
Figure 11: EMN Issued Capital
Source: Company Reports
Major shareholders
EMN’s substantial shareholders include Terra Capital (~9%) and Tribeca (~5%)
with institutional ownership ~22%. Board and management hold ~20% (excluding
outstanding options and warrants) of shares with the balance (~57%) being retail
shareholders.
Balance sheet & cash flow
EMN reported a cash balance of ~C$10.0m at the end of Nov’18 and currently
holds no debt. The company’s most recent capital raising event was in Oct’18,
where its raised ~C$7.6m net of costs via an IPO when it dual listed on the ASX
and TSX. The IPO consisted of
25m shares listed on the ASX for A$0.26/sh, raising A$6.5m.
10m shares listed on the TSX for C$0.25/sh, raising C$2.5m.
In Feb’18 (prior to the dual listing), EMN completed a private placement by issuing
a total of 37.75m common shares at a price of C$0.20/sh, generating a gross
cash proceed of C$7.6m.
Over 2019 we expect EMN to spend ~C$10m on key project development
activities. These include building and commissioning a large-scale
hydrometallurgical demonstration plant and progressing a definitive feasibility
study (DFS due H1’20).
We have assumed that pre-construction expenditure of ~C$20m can be funded
through current reserves and an equity raising of ~C$10m over H2’19.
Within our cash flow projections, we have conservatively excluded taxation
benefits (i.e., booking losses, accelerated depreciation) nor government grants
(development funding) that may exist in the project.
Price Expiry
Issued Shares m 170.71 $0.23 -
Options 1 m 1.63 $0.08 16/05/2026
Options 2 m 0.20 $0.10 14/06/2026
Options 3 m 1.58 $0.10 6/04/2027
Options 4 m 3.40 $0.11 22/09/2027
Options 5 m 0.70 $0.11 14/12/2027
Options 6 m 3.23 $0.20 21/02/2028
Options 7 m 0.50 $0.20 20/03/2028
Options 8 m 1.30 $0.25 15/08/2028
Warrants 1 m 2.04 $0.11 16/06/2019
Warrants 2 m 0.29 $0.11 30/06/2019
Warrants 3 m 0.42 $0.11 31/07/2019
Warrants 4 m 0.17 $0.11 18/08/2019
Warrants 5 m 2.86 $0.30 18/02/2021
Warrants 6 m 2.90 $0.38 1/10/2021
Total Options/Warrants m 21.21 0.19
Fully Diluted m 191.919
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 7
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As presented in Figure 12 below we estimate the CMP could generate site level
EBITDA of ~US$200m generating post tax flows of ~US$750m over the first eight
years of the project. Based on estimated capital costs as outlined in the PEA, we
estimate a payback period of ~4 years.
Our current cash flow modelling also incorporates a nominal 50:50 debt to equity
funding scenario of the ~US$400m in project capital expenditure from 2020. This
is expected to be achieved through the possible options as outlined below.
Figure 12: EMN projected cash flows (note FY year SepQ end)
Source: Canaccord Genuity estimates
Project Funding
Post the delivery of the PFS (expected early 2020), EMN will confirm total project
capital costs which we have assumed to be US$250m (direct) + US$150m
(indirect) based upon PEA estimates. Upon reaching a final investment decision
(FID) EMN will be able to consider various project level funding. These elements
could include:
Project sell down: Based on initial discussions with end users EMN may
leverage the strategic features (location, environmental credentials
(waste recycling aspects) of the Chvaletice project to allocate a portion of
product offtake as part of a project sell down. We view that EMN will limit
this to an appropriate level (i.e., <30%) to maintain project control with
valuation expected to materially increase as development activities
further de-risk the project towards FID.
Project debt: We expect that EMN will be able to establish firm
“bankable” product offtake lending into FID which will satisfy the ability to
access conventional project debt finance. We expect first draw down to
occur as construction commences over 2021.
Engineering package: EMN have used CINF Engineering Co. Ltd (a
division of State-owned Aluminum Company of China) for process
flowsheet development work for the PEA. We note that EMN and CINF
signed an MoU in H1’18 based on the delivery by CINF of a turn-key,
lump-sum engineering, procurement, construction and commissioning
(EPCC) package for the CMP with completion and performance
guarantees. This EPCC package is intended to be an alliance model that
we view will reduce cost and timing risks, as well as providing EMN will
more certainty on project financing.
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Cashflow Cummulative CMP Cash Flow
Euro Manganese IncorporatedInitiation of Coverage
Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 8
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European Union grants: We note the recent approval by the European
Union of a 36 million euro grant to South Korean corporation LG Chem
(051910:KRX|Not Rated) to assist with funding the first phase of its
lithium ion battery plant near Wroclaw, Poland, located ~225km from
CMP, with an initial capacity for the cell production of 100,000 electric
vehicles per annum.
This is part of the European Battery Alliance formed in October 2017 to
look to increase regional vertical integration in the manufacture of lithium
ion batteries and the development of a battery raw materials chain within
Europe. At least €23B has been made available under the initiative with
more than 250 companies and research centres part of the Alliance.
Valuation
Our project valuation is based on our assumed development/production scenario
at the CMP, comprising a 25-year 1.1mtpa operation producing ~50ktpa of high
purity Mn products at a refinery located adjacent to the waste reclamation area.
Given the finite resource inventory, we consider Mine life extension unlikely.
Our model assumptions as indicated in Figures 13 and 14 below are based upon
capital and operating cost estimates given in the Jan’19 Preliminary Economic
Assessment. We have taken a more conservative approach to some of these input
parameters as detailed in the capital and operating section of this report.
Our Valuation assumes that the CMP upon establishing a 50ktpa HPEMM
operation by 2022 will be augmented by 33ktpa HPMSM production circuit by
2025.
Based on our market analysis (Product Pricing) we have assumed an average
product price of US$4,617/t for HPEMM and US$2,666/t (32% Mn) for HPMSM.
While we highlight that this is above our current understanding of ‘spot’ pricing
(~US$3,200/t for HPEMM and US$1,300/t (32% Mn) for HPMSM), it is a
conservative price based on forward projects (see Figure 18).
Figure 13: Key assumptions -Physicals/pricing Figure 14: Key assumptions – Costs
Source: Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates
Given the early stage of development of the CMP (PEA level accuracy) along with
the financing and permitting stages to progress through we have applied a 0.4x
Multiple on our CMP valuation to capture project and financing risks (see here).
Our net asset valuation per share is based on a diluted share basis of 240m
shares to account for short term funding of C$10m (assumed during H2’19 at
C$0.30/share) to complete work ahead of concluding project feasibilities studies
Parameter Unit Value
Project Life Years 25
Resource Mt 26.5
Resource grade % Mn 7.33
Plant feed rate mtpa 1.1
Magnetic Separation recovery % tMn 88
Acid leach recovery %t Mn 75
Overall Mn recovery %t Mn 59
LoM avg HPEMM produced ktpa 48.1
LoM avg HPEMM:HPMSM ktpa (MnEq.) 33.4
LoM avg HPMSM produced ktpa (MSM) 102.1
HPEMM price received US$/lb 4617
HPMSM price received US$/lb 2666
Parameter Unit Value
Site +Tailings area capital US$m 42
Infastructure capital US$m 21
Process plant capital US$m 167
HPMSM plant capital US$m 25
Direct costs US$m 255
Indirect capital costs US$m 149
All in Capital Costs US$m 404
LoM sustaining capital US$m 25
Operating costs -C1 US$/t 2552
All-in Operating costs -C3 US$/t 3067
LoM avg FX rate CAD:USD 0.75
AUD:USD 0.71
CZK:USD 0.045
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over 2019 (when and what price?). The current share price implies a potential
return of +250%.
Figure 15: Net Asset Valuation
Source: Canaccord Genuity estimates
Figure 16: Valuation Sensitivity
Source: Canaccord Genuity estimates
NET ASSET VALUATION
DISCOUNT RATE 12% Shares (m) 170.710
Future Equity Raised (m) 33.956
NAV Shares (m) 204.665
Options (m) 21.21
Diluted (m) 225.874
C$m Multiple EQUITY A$m A$/share
Chvaletice 524.11 0.4x 100% 220.73 $0.977
Investments 0.00 1.0x 0.00 $0.000
Corporate -6.24 1.0x -6.57 $0.029
Cash and equivalents 10.36 1.0x 10.91 $0.048
Future Equity Raised 10.00 1.0x 10.53 $0.047
ITM Options 2.83 1.0x 2.98 $0.013
TOTAL 313.45 0.00 1.06
0.00 $1.10
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
-30% -20% -10% 0% 10% 20% 30%
HPEMM Price HPMSM Price
Processing Cost (US$/t) Exchange Rate ((C$:US$)
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Manganese Market Snapshot
Below we provide a key summary of our assessment of the manganese speciality
metals market that is provided in the Appendix section here.
Manganese (Mn) is the fourth most used metal globally in terms of volume
(60mpta of ore) sourced predominately from oxide deposits in South Africa and
Australia. While higher in concentration (30-50% Mn) than carbonate deposits
(10-30% Mn), impurities can impact downstream processing and the quality or
purity of end products
The product markets for manganese are classified as either traditional or
speciality, and feature having completely different pricing characteristics.
Traditional markets closely correlate to the steel industry with product substitution
risk while for specialty markets product purity, supply traceability, and increasingly
production method, are the key determining factors in price negotiations.
Figure 17: Manganese Market – Blue denotes ore supply, black intermediate products, grey product demand, orange process steps. Red section
denotes EMN are targeting direct production of HPEMM and HPMSM to supply the high growth LiB batteries market (green). The CMP is expected
to have direct exposure to the Li-B market, bypassing the influence of traditional market supply steps.
Source: International Manganese Institute, CMP GROUP, 2017 actual Figures, Canaccord Genuity Estimates
As shown in Figure 17, traditional segments such as Ferroalloys account for over
90% of demand with the speciality segment further classified as conventional or
high purity products. It is high purity electrolytic manganese metal (HPEMM)
market that EMN is intending on entering.
The EMM market (~1.6mtpa) is a mature market for use in smelting processes
with a reference price for a conventional (99.7% Mn) flake product. Production is
dominated by China through the use of Selenium (a known carcinogen),
presenting undesirable impurities for high level applications (such a lithium ion
battery cathode).
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A discrete group of EMM producers have developed flowsheets to produce EMM
at a high purity (i.e., 99.9% Mn) without the use of Selenium. This provides the
necessary purity that can be subsequently used in the manufacture of lithium ion
battery cathode powder known as high purity manganese sulphate monohydrate
(HPMSM).
As per Figure 2 we expect that the lithium ion battery sector will grow x5 over the
next seven years. The dominate battery cathode formulation is anticipated to be
Nickel-Manganese-Cobalt (NMC). As Manganese only represents 2% of current
cathode material costs, we expect that required tolerances will be higher to offset
potential cost out strategies by cathode manufacturers such as thrifting (i.e. less
cobalt) or product specification (lower feedstock purity standards).
Industry estimates are for a material deficit to occur in the supply of HPMSM over
the long term, with emergent supply either through the direct leaching of ores or
the requirement to go through the EMM route, quite often requiring costly
calcining of the more abundant oxide ore.
This potential market deficit presents an opportunity for prices in the HPEMM and
HPMSM markets to appreciate further, however for our modelling purposes we
have used the midpoint price forecasts of US$4,617/t (for HPEMM) and
US$8,331/t (for HPMSM provided by market consultants as shown in Figure 18.
Figure 18: Specialty Manganese Metal Pricing Forecast
Source: CMP GROUP
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2018 2020 2023 2025 2028 2030 2033 2035 2038 2040
US
$/t
HPEMM (99.9% Mn) EMM (99.7% Mn) HPMSM (100% Mn)
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Peer Comparisons
EMN presents as one of the only manganese companies that has direct exposure
to the growth market of EMM. We provide a list of various other manganese
companies listed on the ASX and TSX in Figure 19 with the key distinction being
target product markets as shown in Figure 17. To our knowledge, EMN is the only
listed company with a carbonate manganese deposit and that is specifically
targeting the specialty chemicals sector with a verifiable flowsheet.
Figure 19: Listed Manganese Companies
Source: Company Reports, Canaccord Genuity estimates. Factset (priced at close of trade 04/02/2019
As there are no directly comparable projects/companies, we have compared EMN
with selected other developers of battery materials in our coverage.
Figure 20: CGAu Battery Developers Coverage
Source: Company Reports, Canaccord Genuity estimates. Factset (priced at opening trade 04/02/2019)
Element 25
Pure
Minerals
Manganese
X Energy
American
Manganese
Inc
Gulf
Manganese
Corp
Euro
Manganese
Inc OM Holdings
Jupiter
Mines
Market Data
Ticker E25-AU PM1-AU MN-CA AMY-CA GMC-AU EMN-AU OMH-AU JMS-AU
Reporting Currency AUD AUD CAD AUD AUD CAD USD USD
Price $0.17 $0.02 $0.12 $0.15 $0.01 $0.31 $1.33 $0.25
Basic O/S (M) 84 314 56 199 3511 171 739 1959
Market Capitalisation (M) $13 $5 $7 $25 $35 $53 $972 $470
Enterprise Value $5 $3 $5 $24 $31 $44 $1,438 $394
Project Data
Name Butcher bird Battery Hub Battery Hill Artillery Peak Kupang Chvaletice OM Saraw ak Tshipi
Type Oxide Oxide Oxide Recycling LiB's Smelter Carbonate Oxide Oxide
Country Australia Australia Canada USA Indonesia Czech Republic Malaysia South Africa
Resource (yes/no) yes No yes NA Yes Yes yes
Resource size (Mt) 180.8 65.00 NA 27.00 30.00 1852
Resource grade (%Mn) 11% 14% 12% NA 12% 24% 37%
Proposed Product (s) MSM, EMM HPMS, EMD,
EMM
EMD Reformed
NMC cathode
FeMn HPEMM
HPMSM
Mn Ore, Ferro
Alloy
Mn Ore
Stage Completed Scoping Prelim leach w ork Zero Pilot scale Construction PEA complete Producing Producing
Proposed flow sheet Leach EW Leach NA conceptual Smelt of FeMn Se free leach Smelt of FeMn
Sample Purity NA NA NA 99.90%
Capex (US$m) Not Disclosed NA $400
Initial Production Date current Q1'19 2022 current
Initial Production (ktpa Mn) 17 TBA 145ktpa FeMN 50 200kt FeMn+300kt MnAl1496
Company
Euro
Manganese
Kidman
Resources
Piedmont
Lithium
Lithium
Power
CleanTeq
Holdings
eCobalt
Solution
Inc
First Cobalt
Corp
Market Data
Ticker EMN-ASX KDR-AU PLL-AU LPI-AU CLQ-AU ECS-CA FCC-CA
Rating SPEC BUY SPEC BUY SPEC BUY SPEC BUY SPEC BUY SPEC BUY SPEC BUY
Trading Currency A$ A$ A$ A$ A$ C$ C$
Price Target ($/share) 1.10 2.10 0.3 0.55 1.15 0.9 0.7
Price 0.31 1.25 0.1 0.24 0.41 0.47 0.17
Market Cap. (A$m) 53 506 67 63 306 75.2 57.7
Enterptise Value (A$m) 43 502 57 47 883 61 53
Project Data
Project Chvaletice Mt Holland Piedmont Maricunga Sunrise Idaho Idaho
Ow nership 100% 50% 100% 100% 100% 100% 100%
Completed Stage PEA PFS Scoping DFS FEED FS Maiden resource
Final Product HPEMM/MSM LiOH LiOH Li2CO3 Ni/Co Sulphate Co Sulphate Co Sulphate
First Production 2022 2021 2021 2024 2022 2020 2024
P/NAV 0.28x 0.60x 0.33x 0.44x 0.36x 0.52x 0.24x
NAV (5%) 3.08 2.78 0.56 1.74 2.81 114.48 217.93
Discount Rate 12% 10% 10% 10% 10% 8% 15%
Total All in Capex (A$m) 561 1186 690 777 1979 132 73
Unrisked Project NPV (A$m) 552 3361 655 443 1720 309 585
Avg Revenue (A$m) 448 831 458 321 1133 70 74
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While we highlight that each of these projects and markets are at different stages
of development, we view that EMN currently offers the largest implied return (i.e.,
P/NAV of 0.28x vs peers average of 0.49x).
EMN’s CMP project provides an attractive payback period (4.5 years) correlating
to a comparatively low capital intensity.
Figure 21: Proforma EV: capex ratio for CG battery developers Figure 22: EBITDA margins vs payback vs capex intensity
(capex/annual revenue) for CGAu battery material developers
Source: *Includes CLQ (US$500m secured debt). Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates
EMN
KDR
PLL LPI
CLQ ECS
FCC
0.00x
0.10x
0.20x
0.30x
0.40x
0.50x
0.60x
0.70x
0.80x
0.00x 0.10x 0.20x 0.30x 0.40x 0.50x 0.60x 0.70x
Pro
form
a E
V : C
apex R
atio
P/NAV
EMN KDR
PLL
LPICLQ
ECS
FCC
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0 2 4 6 8 10
Avg E
BIT
DA
marg
in (
%)
payback period (years)
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Chvaletice Manganese Project
Location & Access
The Chvaletice Manganese project (CMP) is in the western area of the Pardubice
region of the Czech Republic. The project is located adjacent to the townships of
Chvaletice and Trnavka, an industrialised area with skilled labour expected to be
sourced locally.
The site can currently be accessed by a short gravel road off a sealed highway
(Highway #322) which is along the southern border of the project. Highway #322
provides access to Kolin, which allows access to Highway #12 which connects
Kolin to Prague.
Figure 23: Project location map
Figure 24: CMP claim area noting power station located to the South
East (bottom right) and proposed plant site (bottom left)
Source: Company Presentation
Source: Company Reports
A rail line is located immediately to the south of the project which acts as the main
transportation line from Prague to the Eastern towns/cities of the Czech Republic.
The train line was used to transport minerals from historic mining and is currently
used to deliver coal to an adjacent power station. The coal fired 820-megawatt
power station is still operational and supplies the Czech Republic’s national grid.
EMN have proposed to locate the processing plant at a parcel of land adjacent to
the existing Chvaletice power station upon completion of an acquisition
agreement with local company EP Chvaletice s.r.o. (EPCS) The option agreement
for ~20 hectares of industrial zoned land (see Figure 24) is expected to close
pending final approval of the environmental impact assessment and vendor
payments of ~ C$7m. These payments are based on the following instalments.
C$0.9m initially in October 2018.
~C$2.5m within sixty days of the environmental impact statement.
~$C4.9m due upon receipt of all project development permits and no
later than October 2023.
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Project History
1800’s Manganese and iron minerals first recorded near the present-day
village of Chvaletice.
Early 1900’s Sporadic localized mining of the Chvaletice orebody took place.
1930’s Ore processing commenced for the recovery of manganese from
Chvaletice mostly through surface mining. Ore was railed to steel
mills in Czechoslovakia and Germany.
1951-75 The focus of mining operations changed to extraction of pyrite
which was used to produce sulfuric acid. Manganese ore was
deemed uneconomic (grading ~13% Mn) at the time, with tailings
from these operations forming the current resource.
1975-83 In 1975 pyrite mining ceased and the mining lease was cancelled
in 1981 after 32Mt of ore had been extracted and ~28Mt of
tailings had been stored in three cells.
After mine closure the plant site was used to construct an
850MW power plant given the abundant proximity to
infrastructure (rail, port, utilities) the location possesses.
Rehabilitation was completed for three tailings dams which
included topsoil and planting of trees.
Late 1980’s A Czechoslovakian state-owned battery producer (Bateria Slany)
undertook studies to determine the feasibility of producing
manganese dioxide for dry cell batteries.
1989 Development was halted following a political change that caused
the end of communism in Czechoslovakia.
Sep 2014 Mineral rights granted to Mangan.
2014-2016 EMN conducted preliminary auger drilling and backhoe pit
sampling to assess the qualitative aspects of the tailings and to
conduct exploratory metallurgical tests.
May 2016 EMN acquired 100% of Mangan, studies and test work
commenced.
2017 Extensive Sonic drilling campaign completed to evaluate
quantitative and qualitative features of the tailings to allow a
mineral resource estimate.
Apr 2018 EMN completed a 43-101 technical report outlining the JORC
Code compliant mineral resource estimation for the Chvaletice
Manganese project.
Geology
The historic open pit is located approximately 1km to the south of the tailings
deposit and was predominately mined for pyrite over the years. Fly ash and other
waste products from the power station have been used to backfill the open pit.
The existing exposed bedrock is Proterozoic in age and is comprised of deformed
granitic crystalline and overlain meta-sedimentary rocks of the Bohemian Massif.
The local geology of the region is shown in Figure 25.
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Figure 25: Local Geology surrounding the Chvaletice Manganese Project
Source: Company Reports, Canaccord Genuity estimates
In-situ manganese deposits are usually sediment volcanic or karst (Barium)
hosted. The mineralisation in the tailings at Chvaletice differs as it is manmade
from pyrite shale, best described as compacted soil with a low clay content.
Tails deposition commenced in 1950 with local soil compacted as in initial
foundation. Historical reports suggest dam raises were constructed in an
upstream direction using dried and compacted tails, produced though the use of
decantation towers that resulted in sedimentation of three zones of grain size in
the tailings cells. These comprise an inner zone of silt material, central zone of
sandy laminae and an outer zone of fine-grained sand. Ground water within
marine clays and siltstones immediately underlies the Chvaletice tailings dam that
are contained in unlined cells.
Due to waste cells being proximal to the Labe River and overlaying a local aquifer
EMN have monitored ground water for growth for contamination from historic
mining particularly the leaching of heavy metals from past mining.
Mineral Resources
EMN announced an updated Mineral Resource estimate for the project in Dec’18,
with total Measured (98%) and Indicated resources of 27 Mt at 7.33% Mn (5.86 %
soluble Mn). Resources have been defined in accordance with JORC Code
requirements and a break-even grade of 3.20% total Mn has been estimated. Due
to the high level of confidence in the resource (98% measured) and homogeneity,
conversion to Ore Reserves is expected to be high.
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Figure 26: CMP Resource Estimate from December 2018
Source: Company Reports
The current resource is based on eighty holes (~1,500m of sonic drilling) that
were conducted over 2018 to supplement eighty holes (~1680m) over 2017 as
indicated in Figure 27. Spacing of ~75m between samples was used for
measured resource estimates.
The recent drilling program build upon prior resource definition activities including
hand augur drilling and test pits (seven in total to a depth of 3-4 metres) for
particle size and mineralogical assessment.
Figure 27: 3D representation of CMP resource
Source: Company Reports
Mineralogy
Quantitative Mineral Analysis has indicated that the main manganese bearing
mineral is Rhodochrosite (Mn2+CO3) with small amounts of Spessartine
Mn23+Al2(SiO4)3 with these compounds comprising up to 30% of the mineral
assemblage.
Importantly manganese at the CMP is mostly hosted (~80%) in carbonate
compounds as distinct from the major sedimentary deposits found in South Africa
which typically contain mixed manganese oxides, silicates and carbonates (and to
a lesser extent pyrolusite (MnO2)). The chemical form and grade of manganese
present in the manganese minerals has important implications on the soluble
manganese grade as well as the acid consumption of gangue materials.
The carbonates are expected to be readily leachable by sulphuric acid while the
manganese-silicates and oxides are refractory to the leach treatment since
Cell ClassVolume
(m3)
Tonnes
(kt)
Bulk Density
(t/m3)
Total Mn
(%)
Soluble
Mn (%)Total Mn (t)
Soluble
Mn (t)
Measured 6,577,000 10,029 1.53 7.95 6.49 797,306 650,882
Indicated 160,000 236 1.47 8.35 6.67 19,706 15,741
Measured 7,990,000 12,201 1.53 6.79 5.42 828,448 661,294
Indicated 123,000 189 1.55 7.22 5.30 13,646 10,017
Measured 2,942,000 4,265 1.45 7.35 5.63 313,478 240,120
Indicated 27,000 39 1.45 7.90 5.89 3,081 2,297
Sub Total Measured 17,509,000 26,495 1.51 7.32 5.86 1,939,434 1,552,607
Sub Total Indicated 310,000 464 1.50 7.85 6.05 36,424 28,072
Total 17,819,000 26,960 1.51 7.33 5.86 1,975,958 1,580,747
T1
T3
T2
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spessartine silicates (i.e., Mn²⁺₃Al₂(SiO₄)₃.) can’t be reduced for leaching. The
ratio of acid soluble manganese is expected to be ~81%.
Gangue is mostly in the form quartz (SiO2) at around 30% with pyrite (FeS2) less
than 10% with most iron leaching occurs from iron carbonate minerals such as
siderite (FeCO3). In addition, clay content within silicates is low (~2%) highlighting
favourable rheology and soil competency to assist materials handling once the
deposit is excavated.
Particle size and recovery characteristics
Particle size and in-situ moisture will be dependent on the deposition point with
coarser particle size assayed in cell 3. The master blend used for sizing by assay
returned an average particle size (PP80) 0f ~106µm at an in-situ moisture content
of 18%.
Manganese grade across various sub size fractions is consistent as indicated
below in Figure 29 for a coarse composite sample. Importantly manganese
carbonates are most predominate in the ultra-fine fraction (P80 of 20µm) with
~70% occurring as liberated and middling grains highlighting the potential to
directly leach plant feed without the need for comminution.
Test work from both bulk sampling campaigns (Phase 2 in Nov’15 and Phase 3 in
Dec’15) indicated that the proportion of middling and liberated Mn-carbonate
minerals increases (to 90%) as size fractions decrease to below 20µm. This
provides key validation that in-situ manganese is readily leachable and not
residual as a result of previous recovery attempts as could be suspected for a
tailings re-processing operation.
Figure 28: Grade – Tonnage graph for Chvaletice tails Figure 29: Particle size and metal distribution of Sample 10
Source: Company Reports Source: Company Reports, Canaccord Genuity estimates
Project Development
Environmental and Permitting
EMN’s 100% owned subsidiary, Mangan, holds two exploration licences which
covers the mineral exploration rights for the CMP. The exploration licences expire
on May 31, 2023 and permits EMM to conduct drilling on the slopes on the
permitter of the tailings piles.
In Apr’18, Mangan were issued a Preliminary Mining Permit by the Ministry of
Environment, this will form one of the prerequisites for the Mining Lease District
(final mining permit). The permit covers all the land encompassed by the
exploration licence and expires in Apr’23 (if a final mining permit is not granted).
0
2
4
6
8
10
12
14
16
18
<0.02 0.02 0.03 0.04 0.05 0.05 0.08 0.10 0.13 0.15 0.30
Mas
s fra
cti
on
(%
)
particle top size (mm)
Mass (%) Distribution (%)
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The Preliminary Mining Permit forms one of the prerequisites for the application
for establishing a Mining Lease District. The Mining Lease District and
applications for permits relating to the construction of infrastructure required for
the project are required before construction and mining activities can commence.
An Environmental Impact Assessment (EIA) will need to be completed as part of
the Mining Lease District - this was only able to be commenced once the
Preliminary Mining Permit was granted (Apr’18).
Since 2016, EMN has been conducting baseline studies at the CMP to collate
fauna, flora and hydrological/groundwater data. This is part of the company’s
environmental assessment application which is due for filing in early 2019 with
the Czech Ministry of Environment. Upon review a period of public consultation will
commence.
The vicinity of the CMP has been impacted by past mining and related heavy
industrial activities since mining ended in 1975. Czech law exempts land owners
and developers from impacts prior to 1989, when communism ended in then
Czechoslovakia. Hence EMN are indemnified from historical environmental
liabilities and site clean-up responsibilities.
Ore extraction and remediation
The three waste cells containing the 28Mt of resources have been capped and
stabilised with crushed granite aggregate to form a top soil of ~1.3m depth. The
final cell did not reach full capacity with ~0.2m of overburden material capping.
Cell #3 is to be extracted initially with a surge pile providing seven days feed.
Extraction is expected to take place using standard load and haul with excavation
of benches at ~5m height to control ore blending before being fed to a central
hopper for subsequent transfer to the ore treatment plant. In-situ moisture of 15%
is likely to result in plant feed being screened (removal of tramp metal/over size)
before scrubbing and pulping for piping to the process plant ~2km from the waste
cells.
Non-magnetic tails (~600ktpa) along with washed leach residue (~300ktpa) will
be combined with gypsum to be compacted on a lined residue storage facility.
Upon filling cover will be placed to ensure reclamation meets environmental
performance criteria.
Processing description
EMN propose recovering manganese either as an HPEMM or HPMSM product
using conventional processing steps such as magnetic separation, atmospheric
tank leaching, filtration, electrowinning and purification. As manganese is mostly
hosted in carbonate minerals, costly calcining (ore roasting) is not required to
liberate manganese for extraction within the proposed flowsheet.
Leading into the Preliminary Economic Assessment (PEA) EMN engaged CINF
Engineering Co Ltd. (part of major Chinese industrial group Chinalco) to assist with
flowsheet development and vendor equipment specification. Changsha Research
Institute (CRIMM – a division of China Minmetals) with experience in the design
and operation of EMM and MSMs plant were used for metallurgical test work
(magnetic separation and leaching) programs on a ~15t bulk sample over 2017-
2018.
Given the fixed amount of manganese contained within the resource (~2Mt) EMN
have based its design criteria at Chvaletice on a 25-year mine life, implying a
1.1Mtpa feed rate for an overall plant recovery of 59% tMn . A simplified version
of the process flowsheet is shown in Figure 30 below.
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Figure 30: Simplified processing flowsheet
Source: Company Reports, Canaccord Genuity estimates
Pre-concentration
As part of mineralogy assessment, EMN have identified that it is possible to use
wet high intensity magnetic separation (WHIMS) to reject non-magnetic gangue
minerals such as silica and alumina across various size fractions. Magnetic
separation test work has highlighted that ~86% of total manganese can be
recovered into a concentrate containing ~15% Mn from a ~6% Mn feed. This
provides the potential for more than 58% of feed to be rejected, which reduces
over plant capital cost. Further test work is underway to increase concentrate
grades.
Overall EMN expect that preconcentration will reduce plant feed to the leaching
circuit to ~450ktpa from a 1.1Mtpa dry plant feed.
Leaching
Total soluble manganese is expected to be ~80% of the resource with EMN
conducting test work across a range of sulphuric acid dosage (pH from 1.5 to 5).
CRIMM have optimised this test work to indicate the presented feed distribution
(P80 of 32µm) at a pH of ~1.5 produces ~75% (ranging from 72% to 83%) Mn
extraction over a six-hour residence time.
Acid consumption is expected to be moderate at 420kg/t with test work
suggesting moderate temperature control (to ~90°) is required to drive leach
kinetics. Leach pulp (density of ~50%) will be filtered and dry stacked within the
waste cell footprint to ensure site remediation is compliant with low
environmental footprint objectives of the project.
Purification: Post leaching, the pregnant solution is purified with reagents (lime
etc) to precipitate out iron and phosphorus along with other base and heavy
metals. A high purity leach solution optimises subsequent electrowinning current
without the use of selenium through electrolyte purification. A high degree of
intellectual property is contained in this process since CMP ore was first tested in
2016 that we view distinguishes EMN from any potential peers.
Leach residue is selectively washed and neutralised to ensure environmental
standards are met for waste emplacement.
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Figure 31: Key Pilot Plant results for CMP
Source: Company Reports
Electrowinning: Integral Processing step
Electrowinning of acidified leach solutions (electrolyte to produce manganese as
EMM) is a well-established process borrowing techniques used in larger markets
such as copper cathode production. The process applies a tightly controlled
electric current within a cell to deposit metal on a cathode as shown in Figure 32.
The rate of ultra-high purity EMM that is deposited on the cathode is a dependant
on the metal atomic weight (55g/mol) and electrochemical potential (Eo of -
1.185V) of manganese along with the current (ampere) and duration of the
electricity provided to the cell. Through pilot scale test work EMN have considered
design aspects such as cell dimensions, concentrations of manganese and
ammonium sulphate in the solutions, current density, pH of the electrolyte, cell
solution temperature, composition and treatment of anodes and cathodes along
with the electrolyte flow rate to the cells.
Two critical design parameters that EMN have been able to de-risk through test
work in our view place it at a distinct advantage over existing EMM producers.
Firstly, pilot scale test work highlights that consistent product purity >99.9%
Mn can be produced with moderate power consumption of 6,200-6,400kWh/t
of product (compared to +7,000kWh cited for Chinese EMM production).
Current efficiency of 68.7% has been determined and combined with
favourable power costs in country (~US$0.07/kWh) should assist with
providing a competitive cost base at around ~US$2,500/t (see Figure 35)
Secondly, EMN have been able to produce HP EMM without requiring
selenium dioxide that is deployed by others to improve crystal structure and
mitigate impurities that impact current efficiency. Instead, low concentration
sulphur gas along with other passivating/smoothing reagents (not chromium)
are used that maintain product purity. This distinguishes the EMM product
from a purity and environmental perspective which is likely to result in the
product commanding a substantial price premium from product offtakes.
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Figure 32: Electrowinning cell design Figure 33: HPEMM flake from electrowinning Figure 34: HPEMM flake is dissolved (pink
liquor) and evaporated (white powder)
Source: Makhanbetov et al, Metallurgy of Non Ferrous Metals 2015 Source: Company Reports, Source: Company Reports,
Manganese Sulphate production
Within its PEA work EMN have assessed producing Ultra High Purity Manganese
Sulphate Monohydrate (HP MSM) through either;
Direct acid leaching of magnetic concentrate without electrowinning.
From 99.9% HPEMM (Se and Cr Free Electrowinning as proposed).
From 99.7% EMM (Se and Cr containing as per current Chinese process).
Test work has suggested low impurities from HPEMM are required to successfully
produce HPMSM with early indications that it exceeds customer specifications.
The conversion process to HPMSM is well established with indications being that
HPEMM flake is milled and dissolved within a dilute, high-quality sulphuric acid. A
dual stage (crystallisation and purification) process is required with the
crystallisation step (see Figure 30) controlled within a tight operating range to
classify product as ‘high purity’ (to maintain crystal shape, melting point and
reactivity).
As we highlighted in Figure 3, the current demand for HPMSM is expected to grow
by 3x to around ~100ktpa by 2025 – as such, we view that any decision to
expand into MSM production will need to consider market demand, as well as key
project drivers described below.
Trade-off between HPEMM vs HPMSM
The decision to produce HP MSM will ultimately be determined by product
marketing efforts running parallel to project development to establish offtake
terms (quantity, pricing and duration) that in turn will substantiate and support the
scale of HPMSM production.
In its PEA, EMN indicated that a HPMSM circuit can be added to the existing plant
for US$25m to provide 33ktpa HPEMM (~100ktpa HPMSM) production capacity.
We expect this to occur once steady state is reached over 2023 with the CMP
transiting to full HPMSM production from 2025 in line with forecast market
demand as per Figure 3.
The attractive capital intensity of producing HPMSM is due to the low technical
complexity of the process which entails size reduction, re-leaching, and
crystallisation
In determining the cost vs benefit of HPMSM production, we highlight the
improved operating margin of 56% over the LoM vs 40% for only HPEMM
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production. These are based on our long-term price projections of US$4,617/t for
HPEMM and US$2,666/t for HPMSM. At current spot pricing (~US$3,200/t for
HPEMM and US$1,300/t (32% Mn) for HPMSM this operating margin declines to
20% and 23% for HPEMM and HPMSM however this price is not reflective for
>99.9% Mn purity that EMM have demonstrated achieving.
Figure 35: CMP operating cost margin expansion with HPMSM production Figure 36: Evaporating Crystalliser
Source: Company Reports, Canaccord Genuity estimates Source: University of Chemistry and Technology, Prague
Operating and Capital Costs
We have used the preliminary economic study (PEA) released in Jan’19 as the
basis for our cost estimates. We note that the PEA has been performed to a
feasibility (+/-15%) level of accuracy on certain aspects of the project by
consultant Engineer Tetra Tech Canada with Bilfinger Tebodin localising costs to
Czech standards and estimates.
Figure 37: Capital Costs
Figure 38: Operating Costs
Source: Company Reports, Canaccord Genuity estimates
Source: Company Reports, Canaccord Genuity estimates
Direct capital costs are mostly (65%) within the process plant to construct the
equipment described within the flowsheet section above. Mining (no pre-strip) and
tailings (minimal land disturbance) are only minor costs. Infrastructure costs are
comparatively low given the excellent location of the project relative to pre-existing
utilities.
Parameter Unit Value
Site +Tailings area capital US$m 42
Infastructure capital US$m 21
Process plant capital US$m 167
HPMSM plant capital US$m 25
Direct costs US$m 255
Indirect capital costs US$m 149
All in Capital Costs US$m 404
LoM sustaining capital US$m 25
Parameter US$/t Mn
Extraction and Stacking 174
Mag Sep + Leach + EW 1747
MSM Plant 334
General + Administration 113
Contingency 180
Onsite costs (C1) 2547
Freight + Insurance + Selling 334
Royalty - Govt 96
Royalty - NSR 85
Offsite costs 515
EMN All-in Opex 3062
Sustaining capital 21
Corporate and Overheads 23
In mine Exploration 19
All in Sustaining Cost 3125
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Indirect costs represent ~40% of direct costs and in our view present the best
opportunity to reduce overall funding requirements. We expect that as feasibility
work is concluded EMM will look at various EPC packages as part of project
delivery.
Operating costs (as presented in Figure 37) are mostly associated with the
hydrometallurgy plant. As flowsheet designs are finalised within the feasibility
study, we expect EMN will look at opportunities such as heat recovery, reagent
recycling and equipment selection (i.e. E/W arrangement and filters) to reduce
operating costs. EMN may also scope up installing a plant to generate sulphuric
acid.
Royalties and Taxes
An NSR agreement with total aggregate amount of 1.2% is held by the original
shareholders of Mangan, which was granted as part of the purchase transaction
by EMN for 100% ownership of Mangan.
The income taxes and fee regime imposed by the Government of Czech Republic
on mineral resource projects is not a clearly defined one fit system. The royalty to
the Czech government per tonne manganese produced is 2,308 Kč. (~US$100/t)
while corporate income tax is levied at 19%
Production profile
We anticipate first production from the Chvaletice project in DecQ’22 (Q1’FY23)
with the development timeline expected to consist of an 18-month construction
phase upon a final investment decision being reached.
The process circuit is expected to be ramped up progressively over 12 months
with the HPMSM circuit being progressively brought online from years 1-4 in
20%/33%/50%/66% as per EMN’s market expectations.
In our view, the main risks to production ramp up are not meeting the required
product spec, low recoveries or a material change to unit operating costs. We
have highlighted these in our project risks section and through applying a 12%
discount rate on our project NPV.
Figure 39: CGe CMP Production Profile
Source: Company Reports
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
10,000
20,000
30,000
40,000
50,000
60,000
2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e 2034e
Pri
ce
/ A
ISC
(U
S$
/t)
Mn
Pro
du
cti
on
(tp
a)
HPEMM HPMSM as Mn All in Sustaining Cost Onsite costs (C1)
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Sales and Marketing
EMN have commenced strategic and offtake discussions with several of the
world’s leading consumers, buyers and traders of EMM and other manganese
products used in traditional and cathode applications. We expect that the
Chvaletice project will garner interest of the European lithium-ion battery
participants some of which are listed in Figure 40 below.
The potential of the CMP as a long- life project, compliant with stringent EU
standards and verifiable materials location is aligned to the procurement
strategies of many regional customers. We consider this to add a meaningful
strategic advantage to the project.
Figure 40: Major Li-ion Battery and Precursor Plants in Europe
Source: CMP GROUP
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Project Timeline
Based on the positive outcomes of the PEA, EMN is expected to progress through
to PFS stage assessment of the CMP. We expect this study will to look to optimise
key project parameters such as mine planning, process flow sheet design, and
capital/operating cost estimates.
In addition, EMN plans to undertake further extensional/infill/exploration drilling
in 2019, which has the potential to lead to project life extensions through
increases in Resources/Reserves.
The major activity over 2019 is the construction and development of an onsite
pilot plant to develop operating process, train staff and scale up key units of
equipment. The pilot plant is expected to cost around C$2m to run and is
expected to run over H2’19 to generate large samples of finished product for
customer testing and qualification
In our view, the major risks to the development timelines include permitting and
approvals, financing delays, and securing offtake arrangements.
Figure 41: Project timetable
Source: Company Reports
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Feasibility Study
EIA for Mining License Application
Build/commission/run pilot plant
Product offtake progress
Detailed Engineering
FID and Project Financing
Construction
Start up/commission CMP
2022202120202019
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Appendix – Board and Management
Roman Shklanka – Chairman & co-founder
Roman Shklanka is a geologist with roles including Chairman, Director and co-founder
of Sutton Resources, Canico Resource Corp, Polaris Materials, International Barytex,
Kobex Resources, Delta Gold and Pacific Imperial Mines. He was previously VP
Exploration with Placer Dome and was inducted into the Canadian Mining Hall of
Fame in 2009.
Marco Romero – President & CEO
Marco Romero has over 30 years of experience in the resource sector in leadership
roles across, exploration, mine planning and operations, permitting and finance. He
co-founded several Canadian companies, including Eldorado Gold, Polaris Materials,
Delta Gold, and Euro Manganese.
David Dreisinger – Director
Dr. David Dreisinger is a world leading expert on hydrometallurgy as well as Professor
and Chairholder of the Industrial Research Chair in Hydrometallurgy at the University
of British Columbia. He has published over 300 papers and is co-inventor of 21 U.S.
patents for work in hydrometallurgical research. His previous experience includes
director positions at PolyMet Mining, Search Minerals, LeadFX and officer positions
with Camrova Resources, Clifton Star Resources and South American Silver.
Gregory Martyr – Director
Greg Martyr became a director of the company in March 2018 with over 30 years’
experience in resources investment banking and corporate finance. From 2011 to
2016, Mr. Martyr was a Managing Director with Standard Chartered Bank, ultimately
as Global Head of Advisory, Mining and Metals. From 1994 to 2003, he was employed
in several executive roles by Normandy Mining Ltd., including President, Americas.
Harvey McLeod – Director
Harvey McLeod is a chairman of the ICOLD subcommittee on tailings dams and active
in the Canadian Dam Association. He is currently Vice President, Strategic Marketing
for Klohn Crippen Berger. He is a Fellow of the Engineering Institute of Canada.
Jan Votava – Director and Managing Director Mangan Chvaletice sro
Jan Votava is a highly skilled and respected Czech engineer and executive leader who
holds a doctorate in mechanical engineering. He was formally Technical Director for
Central Europe, Executive Chairman and Managing Director for the Czech Republic for
LafargeHolcim, the world’s largest construction materials company. Key roles included
oversight of the construction of a €250 million cement plant in Hungary using Chinese
technology, equipment, engineering and construction companies. He is now
responsible for leading EMN’s activities in the Czech Republic.
Thomas Glück - Vice President, Project Development
Thomas Glück has a 35-year track record of successful development and operation of
production facilities in the mining and chemicals processing industries. For 23 years
he undertook various development, management and leadership roles for Manganese
Metal Company, a subsidiary of BHP Billiton, the world’s leading producer of high
purity, selenium-free EMM.
.
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Appendix - Investment Risks
Risks to our valuation include:
Financing risks
Our analysis suggests that EMN will require additional capital to fund the development
costs for the Chvaletice Manganese project. As a pre-cashflow company, EMN is
reliant on equity/debt/external capital to fund capital commitments, and there is no
guarantee that accessing these markets will be achieved without dilution to
shareholders.
Furthermore, accurate estimates of capital costs for the project remain subject to
completion of pre-feasibility and feasibility studies, which may see capital
requirements exceed our model assumptions. There is no guarantee that studies will
result in a positive investment decision for the project.
Operational risks
Once in production, the company will be subject to risks such as plant/equipment
breakdowns, metallurgical (meeting design recoveries within a complex flowsheet),
materials handling and other technical issues. An increase in operating costs could
reduce the profitability and free cash generation from the operating assets and
negatively impact valuation. Further, the product purity may differ from initial test work
interpretations which can also materially impact product acceptance by customers
and therefore earnings from forecast production.
Exploration risks
Exploration is subject to a number of risks and can require a high rate of capital
expenditure. Risks can also be associated with exploration techniques and lack of
accuracy in interpretation of geochemical, geophysical, drilling and other data. Our
model assumptions include a significant amount of Indicated, Inferred and assumed
resources, which may or may not ultimately be proven to be economic and converted
into Reserves.
Market risks
EMN is involved in the development of a high purity product into a sector that is
projected to have rapid growth. Given that EMM’s level of proposed production is
close to the current global supply, market discovery will form a large part of sustaining
the potential earnings of the CMP.
Commodity price and currency fluctuation
The company as a near term manganese producer is exposed to commodity price and
currency fluctuations, often driven by macro-economic forces including inflationary
pressure, interest rates and supply and demand of commodities. These factors are
external and could reduce the profitability, costing and prospective outlook for the
business.
Sovereign risk
The Czech Republic is a fiscally stable jurisdiction but has a small and tightly
regulated mining sector. The CMP as a waste reclamation project offers a
development aligned to current regulation with in country permitting and approvals
risks highlighted in our Investment in Czech Republic section here.
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Appendix - Manganese Market Overview
Supply
Manganese (Mn) is the twelfth most abundant element in the earth's crust and
the fourth most used metal in terms of tonnage after iron, aluminium and copper.
While Mn is contained in various geological settings, the two main minerals of
economic value are principally oxide, carbonate and silicate compounds, namely
pyrolusite (MnO2) and rhodochrosite (MnCO3).
Pyrolusite deposits are usually hosted in haematite (iron-oxide) provinces such as
the Northern Cape of South Africa, with oxide ore bodies accounting for 85% of
the world’s identifiable resources and ~30% of production of global ore production
as indicated in Figure 42 and 43. These deposits are typically a higher
concentrate (30-50% Mn) than carbonate deposits (10-30% Mn); however, the
mineralogical complexity and presence of certain impurities can impact
downstream process alternatives, production costs and the purity of end products.
Figure 42: Global Reserves of Manganese ore - 2017 estimates Figure 43: Global Production of Manganese ore - 2017 estimates
Source: USGS Source: USGS
Manganese ore is the predominant seaborne market of ~60 mtpa (contained Mn)
globally which is classified according to grade as high (46% Mn), mid (~38% Mn)
and low grade (~30% Mn) along with iron content (% Fe) as indicated in Figure 44.
Market price is influenced by smelter treatment costs, ore availability and
prevailing end-product demand. Throughout the supply chain from ore through to
99.7% manganese metal and alloys, there is no organised market with price
estimation published through price discovery between traders, end users and
producers.
Demand
The product markets for manganese are classified as either traditional or
speciality segments having completely different characteristics, with manganese
content being the only connection. For instance, the traditional markets behave
like a metal market, closely correlated to the steel industry. This results in
substitution of ferro-alloys with other alternative products for price sensitive
The specialty markets are for pure metals and compounds of high purity with
consumers less price sensitive than the basic metals market. In these markets,
product purity, supply traceability and increasingly extraction method are the key
determining factors in product placement.
Australia
Brazil
China
Gabon
South Africa
Ukraine
Other
Australia
Brazil
China
Gabon
South Africa
Ukraine
Other
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Figure 44: Manganese Market – Blue denotes ore supply, black intermediate products, grey product demand, orange process steps. Red section
denotes EMN are targeting direct production of HPEMM and HPMSM to supply the high growth LiB batteries market (green). The CMP is expected
to have direct exposure to the Li-B market, bypassing the influence of traditional market supply steps.
Source: International Manganese Institute, CMP GROUP, 2017 actual Figures
Traditional segment: ~93% of demand
From the 60Mtpa (~22Mtpa Mn containing) global manganese ore market,
feedstock for ferro alloys dominates overall demand (90%) with a tonne of steel
typically containing 0.5% to 1.0% manganese. This increases towards 10% for
some specialty metals. Demand is broadly categorised across the below products:
Silicon Manganese (SiMn) – This category accounts for ~60% of overall
ferroalloy demand. The main use is in foundry and welding and chemical
compounds (~15% Si, 68% Mn) used to enhance strength and function.
High Carbon Ferro manganese (HC FeMn) – This category accounts for
manganese demand of ~4mtpa and is used in speciality steels.
Refined Ferro manganese – (Ref FeMn) – Demand of ~1mtpa
Slag Manganese – Slag from the smelting of Manganese generates
~3mpta of product for use in the cement industry mostly as a binder.
Figure 45: Manganese processing for ferroalloys
Source: CMP GROUP
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Speciality segment: 7% of demand
From the 22Mtpa Mn containing manganese ore market, approximately 7% is
converted to speciality products, albeit at a higher processing cost than standard
smelting. The speciality segment of ~1.7mtpa contained Mn is either classified as
‘conventional’ (~99.7% Mn) or ‘high’ (99.9%) purity.
Electrolytic Manganese metal (EMM): 1.6mpta of demand as described below.
Production is dominated by China with ~97% market share, produced using a
conventional electrochemical process to obtain conventional purity of 99.7% Mn.
A very small subsector (~50ktpa) and the focus of EMN’s work is HPEMM
produced through Selenium Free electrowinning which is the main distinguishing
impurity. Product is usually in a flake form as depicted in Figure 33.
As depicted in Figure 44 the majority of EMM production is directed into
conventional smelting markets (85% towards ladle metallurgy steel) and
aluminium alloys. Electronic demand through cathode powders used in
rechargeable (lithium-ion) batteries is expected to consume ~120ktpa of Mn.
Electrolytic Manganese Dioxide (EMD): 400ktpa of Mn is expected to be produced
through electrochemical processes shown in Figure 46 below. This is the
incumbent market for primary batteries (non-rechargeable batteries such as AA
type) and earlier stage rechargable batteries (Lithium Manganese Oxide) and is
only expected to provide benign growth in comparison to rechargeable batteries.
Chemical Powders: This incorporates Manganese Sulphate Monohydrate (MSM) of
which 17% is produced as a high purity product for a market of ~170ktpa of Mn.
Production is either through the leaching (with sulphuric acid) and precipitation of
HPEMM flake or carbonate ores as described more extensively below.
Figure 46: Manganese processing for chemical and pure metal use
Source: CMP GROUP
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Appendix - EMM Market Overview
Conventional EMM
EMM production was ~1.6mt over 2018 with the majority (97%) produced in
China through the electrolysis of a manganese-rich solution obtained from a
calcined manganese ore. There are two primary forms of electrolytic manganese;
Electrolytic Manganese Metal (EMM) and Electrolytic Manganese Dioxide (EMD).
EMM production in China is mostly consumed in the steel industry where
manganese substitutes provide a lower cost alternative to nickel in producing
200-series stainless steel. In addition, Chinese EMM is exported to European and
Asian markets as a specialty steel and aluminium product. Electronic and
chemicals account for only about 2% of overall EMM consumption, of which EMD
forms a nominal amount for dry cell cathodes.
Of the 1.6Mtpa of EMM production in China, almost all (~98%) is produced
exclusively through the addition of selenium dioxide and chromium as catalysts to
improve energy efficiency within the electrowinning step. This is achieved through
modifying the crystal structure of the plated metal. Since power is a large
operating cost driver, optimising this process is a key consideration to producers
despite the highly hazardous (carcinogenic) effects of using Selenium. Selenium
also introduces impurities (up to 1200ppm) which results in this production route
not being able to achieve HPEMM specification.
Eramet SA is the only other producer of conventional EMM outside of China to our
knowledge, with a ~20ktpa capacity EMM plant in Gabon.
Figure 47: Cost structure of conventional EMM in China
Source: CRU, IMnI
In addition, declining domestic manganese carbonate ore grades in China, much
tighter environmental regulations, and increasing labour/energy costs are
expected to impact the cost of EMM production longer term. Over 2018, Ningxia
Tianyuan Manganese Industry (TMI) (~30% global supply) reduced output by 50%
to curb loss making production as a result of failed project financing. Product
specification is typically 99.7% Mn as a flake with the price presented in Figure 49
for a domestic China product. US and European imports are usually subject to
tariffs, increasing market price ~ 15% on Chinese domestic pricing.
A manganese compound used in mature markets is Electrolytic Manganese
Dioxide (EMD) produced through roasting/leaching of pyrolusite (oxide) ore. EMD’s
main application is in disposable alkaline batteries along with some minor use in
elementary Lithium Manganese Oxide (LMO) formulation. EMD is not suitable for
52%
29%
8%
5%4%
2%
Ore
Power
Suphuric Acid
Reagents
Labour
Transport
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use in higher performing cathode (i.e. NMC) and hence does not present as a
substitute to high-purity EMM or MSM products. The market for EMD is quite
mature (~400ktpa) and as such demand growth is expected to be negligible.
Figure 48: EMM represents ~10% of the market of Mn end products Figure 49: +99.7% EMM flake domestic China pricing
Source: Company Reports, Canaccord Genuity estimates Source: Shanghai Metals Market
High purity EMM
A further sub-sector of the EMM market exists that is known as 99.9% selenium
free high purity EMM (HPEMM) for high specification products in the alloying and
chemical markets. We understand that only three companies in the world produce
selenium free manganese metal: Manganese Metal Company (MMC) in South
Africa and CITIC Dameng and Luxi County in China. Production capacity was
around 30ktpa (MMC) and 15kpta (CITIC) in 2017.
Figure 50: Conceptual flowsheet for selenium free EMM production
Source: Manganese Metal Company
Most HPEMM is used to produce carbon and speciality steel along with flat rolled
sheet aluminium with our understanding that ~50% of production is directed
towards NMC (Nickel-Manganese-Cobalt) cathode powder manufacture. Given the
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
SiMn HGFeMn
MG+LGFeMn
Alloys EMM Slag
Mtp
a
Asia Rest of World
1500
1700
1900
2100
2300
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2700
2900
3100
01/2018 03/2018 05/2018 07/2018 09/2018 11/2018
US
$/t
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strong demand outlook for this market segment, we expect an increased
proportion of HPEMM will be converted to sulphate product as indicated in Figure
51 below. Aluminium (34%) and steel (21%) alloys are expected to comprise the
balance of demand segments.
A key distinction of HPEMM over conventional EMM is in pricing with a significant
premium provided to producers reflective of reduced impurities (from 30 to
<10ppm) and the more environmentally friendly process (selenium free). While
premia are often negotiated, we understand that this can be over 50% on the
prevailing conventional 99.7% EMM price depending on quantities required. For
our modelling purposes we have used the price provided in EMN’s PEA of
US$4,617/t (~50% premia on long term forecast pricing), which we view as
conservative noting the importance placed on product purity for use in high end
applications such as Nickel-Manganese-Cobalt (NMC) cathode powders and
potential lack of alternative suppliers.
Conversion of HPEMM to HPMSM
The requirement for Ultra High Purity Manganese (HPMSM) in NMC formulations
results in the processing of HPEMM through a conversion process as indicated in
Figure 51 below. Key technical specifications include particle size and purity
levels (low iron or magnetic elements). Within the crystallisation step, high quality
sulphuric acid is also required, with the crystallisation step controlled within a
tight operating range to classify product as high purity.
Figure 51: HPMSM production process
Source: CMP GROUP
HPMSM can also be produced through leaching manganese containing carbonate
or oxide ores. While oxide ore is more readily available (85% of global resources)
and higher grade (40% Mn vs ~15% Mn), it needs to be calcined first, which incurs
energy cost and yet does not satisfactorily remove contained impurities. The
inherent variability of ore feedstock makes it a necessity to use HPEMM to
produce MSM for high purity markets.
Global production of MSM is estimated at around 500ktpa (~170ktpa contained
Mn), with less than 20% classified as HPMSM. Production again is dominated by
China (~85%) with the only producer of HPMSM externally being US-
headquartered Prince International Corporation (“Prince”), with plants in Mexico
and Belgium. Prince, along with Japanese-based Nippon Denko, claim to be able
to supply ~15% of the HPMSM market, and it is these companies that provide the
most direct competition to EMN. It is our understanding that EMN’s production
cost base of around US$3,000/t is very competitive against Prince and Nippon
Denko, even though these companies directly leach Gabonese mixed
carbonate/oxide ore instead of through HPEMM feedstock.
While there has been commentary around existing Chinese EMM plants to be
refitted for HPMSM production, we view this as being challenged by the ability to
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36
secure carbonate (rhodochrosite) ore and the suitability of conventional EMM
plants rather than HPEMM for this to occur.
EMN’s Chvaletice project offers the unique ability to manufacture HPEMM and
quickly upgrade to HPMSM production. Within the flowsheet description section of
the report we have highlighted the cost/benefit of HPMSM production as market
discovery occurs.
Pricing for HPMSM is through offtake negotiations with reference to the prevailing
conventional EMM price, purity and other technical specifications. Industry
research suggests HPMSM was priced at US$3,860/t (~80% premium to
conventional EMM price; see Figure 49) in 2018. Premia will also vary by region,
with 40-125% noted across Japan to Europe and dependant on end use in the
cathode market. We have used an assumed price of US$8,330/t for HPMSM for
our forecast purposes, as shown in our pricing section.
Manganese in the Lithium Ion Battery Market
Demand
We understand that the current demand for manganese in the form of high purity
MSM is ~35ktpa of contained manganese, as indicated in Figure 55. We
understand that all of this is produced through dissolution of EMM fragments
(rather than direct ore leach), with around 10ktpa being sourced from selenium
free producers (~30% of supply).
We expect the Li-ion market that uses Mn will increase 5x from ~150 GWh of
annual production capacity in 2018 to 700 GWh in 2030, as indicated in Figure 2.
The strongest demand segments within the Li-ion market are those within electric
vehicle and grid storage applications. Superior performance owing to specific
energy, stability and range is likely to place tertiary cathode chemistry using a
combination of Nickel:Manganese:Cobalt as the preferred chemistry. We expect
growth in this cathode segment to increase ~8x from 60GWh of installed energy
capacity in 2016 to ~500Wh in 2025 as indicated in Figure 53.
Figure 52: Li-B demand by sector Figure 53: Li-B demand - 6x forecast growth in NMC cathode to 2025
Source: Company Reports, Canaccord Genuity estimates
Source: Company Reports, Canaccord Genuity estimates
Manganese in the form of HP MSM is only a minor raw material cost within the
cathode and represents <2% of costs within ternary NMC constituents. Hence it is
expected that manganese will remain a low cost, reliable source of metal sulphate
as part of the cathode formulation. Depending on battery chemistry (i.e., NMC
proportions) and the size of the pack and electric vehicle, manganese between 6
0
100
200
300
400
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900
2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e
Inst
all
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GW
h)
E-Scooters E-Bikes Electric BusCommerical (L&H) BEV - Large BEV - SmallPHEV Other Electrical Devices Personal ComputingSmart Phones Mobile Phones StationaryResidential
0
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LCO LMO LFP NMC NCA
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37
to 50 kg is required per vehicle. For an average battery pack (~55kWh) price of
~US$10,000, manganese represents only around US$200 of raw material costs.
We expect the overall demand for manganese (contained Mn) within the battery
segment to increase to ~140ktpa by 2025, with the likelihood that EMM
producers will assess upgrading facilities for direct production of MSM to better
capture operating margin in response to growing customer demand.
Figure 54: Percentage of raw material costs as Manganese Figure 55: Manganese demand from the Li-B sector
Source: Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates
Key sensitivities to our demand forecast (Figure 55) are the migration towards
higher nickel content NMC formulations that will proportionally reduce the
required manganese unit demand as per Figure 54. While this is not being driven
by raw material costs with regards to manganese, there is an inherent theoretical
benefit from migrating towards higher nickel content to increase battery capacity.
For instance, a 20% increase in content from NMC 622 to 811 can increase
capacity from 160 to 200 mAh/g.
Ternary cathode composition (as per Figure 57) is likely to migrate towards
NMC811 in time; however, we highlight key technical limitations associated with
maintaining cathode structural stability (Ni4+ reactivity) which results in a trade-off
between capacity and cycle life of the battery.
As manganese only represents 2% of current cathode material costs, we expect
that required tolerances will be higher to offset potential cost out strategies by
cathode manufacturers such as thrifting (i.e. less cobalt) or product specification
(lower feedstock purity standards).
7.8%
2.1%1.9%
1.8% 1.2% 1.2%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
LMO NMC (111) NMC (433) NMC (532) NMC (622) NMC (811)
Ra
w M
ate
ria
l C
os
t (U
S$
/kW
h)
0
20000
40000
60000
80000
100000
120000
140000
160000
2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025eM
n D
em
an
d (
tpa
)LMO NMC (111) NMC (622) NMC (811)
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Figure 56: Unit manganese demand Figure 57: Ternary phase diagram - Nickel Manganese Cobalt –
batteries are looking to head bottom right – safety must be considered.
Source: Company Reports, Cairn Energy Source: Julien et al, Materials 2016
In terms of the growth opportunity for EMM within the Li-B market, we expect the
share of EMM to be consumed within battery cathode formulations to increase
from 7% in 2018 to 11% in 2025 owing to the large mature demand base that
exists for EMM within the alloy market.
Figure 58: 2018 forecast market share of battery materials Figure 59: 2025 forecast market share of battery materials
Source: Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates
Supply
One of the fundamental questions that will confront global Li-B manufacturers
moving forward is upstream integration and the strategic sourcing of raw material
requirements. Since product purity is the key consideration to meet important
performance criteria (safety, output, etc.) HPEMM will in our view be the initial
feedstock for all manganese products.
Participants in the Li-B supply chain (Figure 60) will look to source HPEMM either
directly (from producers like EMN) or as a derived HPMSM product. HPEMM will
then have to be converted to HPMSM for precursor production. It is expected that
in time the fragmented nature of the supply chain is likely to streamline as
downstream participants procure raw materials to improve margins once cathode
formulations are established.
Moreover, we expect in time that given the relatively low capital intensity (i.e.,
US$25m for 35ktpa (contained Mn) MSM capacity) to convert HPEMM to HPMSM
0
0.2
0.4
0.6
0.8
1
1.2
LMO NMC-111 NMC-622 NMC-811
Un
it M
n r
eq
uir
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(k
g/k
Wh
)
3%
54%
64%7%
34% 8%
0
5
10
15
20
25
30
Nickel Cobalt Lithium EMM Graphite HPA
Ma
rke
t s
ize
(U
S$
B re
ven
ue
)
Non battery Battery
10%
71% 82%
11% 50% 16%
0
10
20
30
40
50
60
70
Nickel Cobalt Lithium EMM Graphite HPA
Ma
rke
t s
ize
(U
S$
B re
ven
ue
)
Non battery Battery
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39
and forecast pricing premia (CGe US$8,311/t HPMSM vs US$4,617/t HPEMM) it
is likely that producers of HP Mn products will look to internalise conversion
margins and supply HPMSM direct to precursor customers as shown in Figure 60.
As presented by external forecasts to 2040 in Figure 61 it is expected that as the
sector matures, battery chemistry formulations are settled, and supply chains are
potentially collapsed to offer more certainty of supply that a switch to more direct
procurement of HPMSM will occur. While the implied growth rate (~x20) over the
next 20 years may seem quite aggressive, this would only increase specialty
segment demand from 9% to 12% by 2040 assuming a 1% CAGR in traditional
markets.
While it is conceivable that China will continue to dominate as a supplier of MSM,
upgrading of existing plant for high purity production may prove challenging due to
the poor-quality ore (calcined oxide) resulting in high purification costs. As is
critical for battery materials, production qualification can be onerous and not
tolerant to large degrees of variability in specification.
We expect any emergent EMM producers such as EMN will look to install a MSM
circuit (currently 66% of production) to provide maximum flexibility to produce
ultimately what downstream customers demand.
Figure 60: EMM entry to the Li-B supply chain Figure 61: Forecast manganese demand from Li-B segment
Source: Company Reports, Canaccord Genuity estimates Source: Cairn Energy Research republished in CMP GROUP report
Product pricing
The price for manganese ore and products has been relatively stable (Figure 62)
with demand being steady owing to the superior properties and comparatively low
feedstock price that manganese provides as an alloying compound for steel,
copper and aluminium product. As mentioned previously, this offers only minor
correlation to the speciality chemicals market, which is negotiated through offtake
terms.
The maturity of the conventional EMM (99.7%) market lends itself to a reference
price, which has averaged US$2,300/t over the past year as shown in Figure 63.
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Figure 62: Manganese ore price for various grades Figure 63: Conventional EMM (99.7% Mn) price
Source: Shanghai Metals Market Source: Shanghai Metals Market
Industry estimates are for a material deficit to occur in the supply of HPMSM over
the long term, with emergent supply either through the direct leaching ores or the
requirement to go through the EMM route, quite often requiring costly calcining of
the more abundant oxide ore.
This potential market deficit presents an opportunity for prices in the HPEMM and
HPMSM markets to appreciate further; however, we have used the midpoint price
guidance of US$4,617/t (for HPEMM) and US$8,331/t (for HPMSM) for our
modelling purposes.
Figure 64: Manganese specialty market pricing
Source: CMP GROUP
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50
11.00
01/18 03/18 05/18 07/18 09/18 11/18
US
$/d
mtu
Mn (46%) Mn Ore (Mn38%, Fe5%)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2018 2020 2023 2025 2028 2030 2033 2035 2038 2040
US
$/t
HPEMM (99.9% Mn) EMM (99.7% Mn) HPMSM (100% Mn)
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41
Appendix - Investment in Czech Republic
The mining industry in the Czech Republic
Mining activities are mostly restricted to coal production for power generation
within both domestic and EU markets. Coal-fired power generation accounts for
around 60% of the country's total electricity output. It is forecast that Czech coal
output will reach 53.4 million tons in 2018.
Mineral exploration has been mostly focused on the Diamo underground Uranium
project and the Cinovec Lithium Project owned by European Metals (ASX:EMH |
Not rated), and expenditure has increased significantly over the last three years. A
notable recent project development has been the 1.8Moz Mokrsko Gold project
which has been held up by a national decree in 1999 banning gold production
due to potential environmental impacts.
Since 1989 the only new mining operations in the country to come into production
are for industrial minerals (cement, lime). EMN are highly engaged with local
stakeholders across all aspects of the permitting process.
New raw materials policy
In June 2017, the Czech federal government approved and updated the former
state raw materials policy from 1999. The most important step is the shift towards
modern high-tech raw materials (i.e., manganese, lithium, cobalt). This has been
driven by the European Integrated Strategy Raw Materials Initiative which is used
in electronics and other modern industries. In addition EMN have indicated that
Chvaletice is widely accepted as an initiative to “reuse industrial waste“, a key,
officially-declared Czech “foreign direct investment target sector”.
Permitting/approvals process
According to the 2017 “Doing Business 2018” report commissioned by the World
Bank the Czech Republic ranks 30 overall out of 190 surveyed countries as
measured across ten key business indicators. This is in comparison to
neighbouring countries Poland (27), Germany (20), Italy (46) and Hungary (48).
The individual indicators are presented in Figure 65 below with the most relevant
relating to dealing with construction permits, in our view.
Figure 65: Key indicators for doing business in the Czech Republic
Source: World Bank report
The World Bank report provided a case study in which various elements of the
permitting process for constructing an industrial facility were outlined. As
indicated in Figure 66, the duration of the permitting process averaged 247 days
entailing 21 procedures. This is against an OECD average of 155 days and 13
procedures with the lengthiest delays associated with;
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Procedure 5 - Obtain consent of the project from the Environmental
Department of the Municipality – 30 days.
Procedure 8 - Obtain zoning permit – 60 days. Valid for 2 years. Statutory
period to complete is 60 days.
Procedure 14- Obtain a building permit - 37 days.
Figure 66: Construction permit timeline example within the Czech Republic
Source: World Bank report
Key economic statistics
Company tax rate of 19%, which is average for the region (Hungary 9%), Germany
(30%), EU average (22%).
GDP of US$35k pa.
Unemployment currently ~4% having halved over the last five years.
Government debt at 49% of GDP.
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Appendix: Important Disclosures
Analyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.
Investment RecommendationDate and time of first dissemination: February 05, 2019, 09:13 ETDate and time of production: February 05, 2019, 09:13 ETTarget Price / Valuation Methodology:Euro Manganese Incorporated - EMNOur A$1.10/sh. price target is based on a NAV/share approach, applying a multiple of 0.4x to our project NPV12% of C$523m to accountfor development, permitting and finance risk. We have diluted our NAV for assumed new equity (C$10m at A$0.30/sh) over H2’19 toprogress works.
Distribution of Ratings:Global Stock Ratings (as of 02/05/19)Rating Coverage Universe IB Clients
# % %Buy 560 62.64% 47.32%Hold 201 22.48% 29.85%Sell 12 1.34% 25.00%Speculative Buy 121 13.53% 69.42%
894* 100.0%*Total includes stocks that are Under Review
Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx
Required Company-Specific Disclosures (as of date of this publication)
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Euro Manganese Incorporated currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies.During this period, Canaccord Genuity or its affiliated companies provided investment banking services to Euro Manganese Incorporated.In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromEuro Manganese Incorporated .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-managerof a public offering of securities of Euro Manganese Incorporated or any publicly disclosed offer of securities of Euro ManganeseIncorporated or in any related derivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from Euro Manganese Incorporated in the next three months.An analyst has visited the material operations of Euro Manganese Incorporated. No payment was received for the related travel costs.
Euro Manganese Incorporated Rating History as of 02/04/2019AUD0.35
AUD0.30
AUD0.25
AUD0.20
AUD0.15Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Jan 19
Closing Price Price Target
Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)
Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
Online DisclosuresUp-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically)http://disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn:Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a requestby email to disclosures@cgf.com. The reader may also obtain a copy of Canaccord Genuity’s policies and procedures regarding thedissemination of research by following the steps outlined above.General DisclaimersSee “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in thisreport: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; researchanalyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and relatedderivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found ina hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain whollyowned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity LLC, Canaccord Genuity Limited, Canaccord GenuityCorp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc.The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadianbroker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity LLC, a US broker-dealerwith principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer withprincipal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer withprincipal offices located in Sydney and Melbourne.The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon(among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analystshave not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Bankingactivities, or to recommendations contained in the research.Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising asa result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy onmanaging conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy isavailable upon request.
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All estimates, opinions and other information containedin this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and areprovided in good faith but without legal responsibility or liability.From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary ortrading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in thisresearch. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investmentdecisions that are inconsistent with the recommendations or views expressed in this research.This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designatedinvestments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. 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Speculative Buy Target Price A$1.10 | 6 February 2019 Specialty Minerals and Metals 46