Mood
The mood is upbeat at Reunion Manganese Incorporated (RMI) about the prospects for achieving economic success from its Matthews Ridge mining operations. The picture that was presented to a group of stakeholders, which included investors and policy makers who visited the area on February 24, 2012, was one of optimism based on the production potential emerging from current exploration studies of its prospecting claims. A team that included the Executive Chairman of the company and other senior managerial and technical staff provided the visitors with an assessment of the production potential of the mining area and the opportunities and likely threats it could face in seeking to maximize the benefits of its mineral licence. Amidst important but limited infrastructure work, RMI believes that it would be able to shorten the time between exploration and the commencement of production activities, and hit the global market in a well timed intervention. Notwithstanding the optimism, Guyanese must wonder if RMI is raising its hopes too high, especially given the reported oversupply of the product and the bottlenecks in its supply chain operations arising in part from poor work habits and the bureaucratic chokehold of Guyana’s regulatory system.
Confidence
RMI is a subsidiary of Reunion Gold Corporation whose stock trades under the ticker symbol RGD on the Venture Exchange, a Canadian stock exchange. Reunion has placed its confidence in the mineral potential of the Guiana Shield. With investments in Suriname and Guyana, Reunion Gold Corporation, has staked its future, and that of its investors, on nature’s precious and base metals lying amidst the rocks and vegetation that could be found in part of the northern reaches of South America. In the case of Guyana, Reunion Gold, through its subsidiary RMI, has taken control of 45,729 acres of land at Matthews Ridge which it has been exploring for the past two years in pursuit of the manganese deposits lying beneath its soil. The exploration area under its control includes manganese mines that were already exploited by a subsidiary of Union Carbide between the period 1962 to 1968, but which could be further exploited with the use of current technology that is far superior to what existed when the mines were abandoned 44 years ago.
Outer Limits
The company is not ready as yet to disclose its deposits since it is still undertaking explorations. However, it is clear from the briefing provided by Dr. Grantley Walrond, a senior technical advisor and leader of the company that the exploration and mining risks that RMI was once concerned about have begun to recede into the background. RMI is no longer worried as to if it will find deposits in commercial quantities. That matter has been settled with its energetic drilling and extensive testing activities in its world class laboratory on site in Matthews Ridge. For RMI, it is now a matter of establishing the outer limits of its reserves, confirming the grade of ore that would make it to market and readying itself to produce the dark matter. Current world standards use a concentration of about 48% manganese to price the product, and RMI is hoping to place ore with a plus 40% concentration on the market. One investor on the tour shared his expectations with this writer and, when questioned, expressed confidence in the viability and soundness of his investment in the manganese venture. Like the management of RMI, his confidence is based on the future prospects of the industry. If the current conditions of the industry were on his mind, it did not show during our lengthy conversation and perhaps reflect the disposition of a seasoned risk-taker in the securities market.
Market
Despite the optimism, the availability of the ore does not guarantee anything for the company or the country. The primary use of manganese ores is the production of alloys that are used in the manufacture of iron and steel. To a lesser degree, manganese is used in the production of dry cell batteries and other non-ferrous alloys. An estimated 45 million tonnes of manganese concentrates are produced annually with 94 percent heading for the steel mills. The largest producers of the ore are South Africa, China and Australia with sizable contributions coming from Brazil, Gabon, Ghana, India and a combination of other countries. With the bulk of manganese linked to iron and steel production, the fortunes of the commodity are tied to that of iron and steel and moves in concert with the latter product. The demand for steel is down on account of weak economic conditions in the industrialized world. This has resulted in an oversupply of manganese with consequences for the price and producers of the product. The operation of mines has become unprofitable for many producers at a time when RMI is seeking to put itself in a position to come to market with the highly consequential quantity of two million tonnes annually. RMI is not there yet and is still to undertake a feasibility study, the conclusion of which will mark a crucial decision point of the company.
Looking Ahead
The leaders of RMI are continuing with drilling, testing and installation of infrastructure. From its Management Discussions and Analysis, the company understands that the price for manganese can fluctuate frequently and widely, and that it will be competing in an intensely competitive market. As it keeps an eye on what is taking place now in the global marketplace, RMI is looking ahead and there is where it sees opportunities for itself. According to Chief Operating Officer, Joachim Bayah, the future is bright for RMI. He pointed out that Guyana had certain production advantages such as low infrastructure requirements and a manageable environment that give it a competitive edge over other producers. These advantages, coupled with economic projections by industry analysts of favourable market conditions for manganese by the time RMI is ready to come to market, increase stakeholders confidence in RMI’s investment.
Declining Production
Some evidence of that possibility has started to emerge with Samancor, a major South African producer, deciding to halt permanently production at one of its mines. In addition, South Africa is in no position to increase production in the face of increasing production costs. The Chinese threat is also expected to recede on account of a declining quality of ore. The current standard concentration of manganese is 48% and some reports indicate that the quality of Chinese ore is falling below that level. Brazil, Ghana and India are not seen as threats either. Producers like Brazil and India do not have enough ore to place on the export market in light of their own domestic needs. Ghana which has future export potential is a far way off from making a difference in the supply of manganese. Other producers are making decisions, albeit temporary, to scale back production, which is expected to undermine further the supply of manganese.
Demand Side
It is perhaps the demand side of the market equation that could be exciting stakeholders of RMI. The increase in demand is expected to come from two sources, one, the expansion in economic output and two, the emergence of new products that rely on manganese. No one expects the weak economic conditions in the industrialized world to continue. In fact the turnaround, though slow, is on the way. The recovery has not begun to hit the big ticket items that require plenty of steel. In addition, the high growth rates in countries like Brazil, India and South Africa are forecast to continue for the foreseeable future and add to the projected shortfall in supply that RMI is banking on. The expected higher demand will put pressure on supply and cause prices to rise. If the economic analysis and projections play out, the financial returns can be enormous for the investors of RMI and Guyana as a whole.
Endless Possibilities
The more exciting developments on the demand side of the equation are the emergence of new products that are increasingly relying on manganese for their efficiency and appeal. Researchers in the US Department of Energy are studying electrolytic manganese, with promising results, as a replacement for rare earth metals in magnets. In addition, the anticipated growth in electric vehicles is helping to boost interest in, and demand for, manganese. Other research is showing that car batteries that are manganese based can recharge in minutes and not in hours as currently is the case.
Environmentalists would be pleased with this type of development since the production of electricity from manganese-linked products is sustainable and can help ease the pressure on the environment. It is not clear how soon these advances in technology will make it big on the market, but the trend is evident and encouraging, and progress is rapid.
By increasing its utility to products used in everyday life, manganese will become more desirable. With possibilities seeming endless, it is understandable why the stakeholders of RMI are encouraged by the emerging prospects of the investment. For things to remain that way, RMI must work with the administration to overcome the formidable supply-chain bottlenecks that are in its path.
