A low iron ore price is not bad news for everyone. For Gulf Minerals Corporation Limited (ASX: GMC) it presents an opportunity to develop a manganese alloy smelting operation with low overheads and good margins. Built in Kupang, the capital city of West Timor in Indonesia, the facility will take low-cost, low-impurity 52% manganese ore produced in Indonesia and blend it with lower-grade imported ores to produce a premium 78% manganese alloy.
Besides cheap ore, Gulf’s smelting operation will also benefit from the low-cost labour and modestly priced power available in Kupang. As a business adding value to Indonesian ore – in addition to creating employment and enriching the local economy – Gulf will also be eligible for the Indonesian government’s Financial Incentives Programme, which will save it from paying tax for five years. In addition, the company’s board and management team are well equipped with substantial experience in both Indonesia and the manganese business. These advantages all bode well for Gulf’s future as a manganese alloy producer.
The company’s plan is to build eight furnaces over a four-year period, at a total capital cost of US$52 million. Each furnace will have the capacity to produce 20,000 tonnes of alloy per year, which at today’s alloy prices will produce $25 million in revenue. The first two will be built this year in order to come online in January 2016, with a further two built each year between 2017 and 2019.
They will be fixed semi-closed AC ARC furnaces, built in modular form to eliminate construction risk. Modular components will include an integrated batching feed system, electrode columns, fume abatement system and auxiliary systems. During the first two furnaces’ construction, Gulf will generate early cash flows by exporting 50%+ manganese ore.
Gulf has now completed all technical engineering for the smelter furnaces and engaged the contractors for the construction phase. West Australian group Como Engineers, who has worked in Indonesia for some time, will manage the project while South Africa’s Xram Technologies will be its pyrometallurgical engineers. The overall project should create 650 direct jobs, as well as 4,500 flow-on jobs.
Sigur Holdings Inc. has agreed to provide $20 million of funding for the project under a Committed Equity Funding Agreement. Following a successful Entitlement Rights Issue on the ASX, in which Gulf raised $1.3 million, the company is preparing to dual-list on the Singapore Exchange’s junior board, Catalist. Everything is ticking along according to schedule.
Once built, the eight-furnace complex will require 260,000 tonnes of Indonesian ore and 100,000 tonnes of imported ore per year. This will come from PT Century Metal Indo and IMC Ores and Alloys, respectively. Gulf is also open to treating other miners’ ore on a tolled basis. The resulting alloy will be 78% manganese, 12% iron, 7.5% carbon and 1% silicon.
The market for Gulf’s end product is large, and set to grow larger. Manganese is the fourth most-used metal after iron, aluminium and copper. Approximately 90% of all manganese is used in the steel industry, where it is used to increase strength and hardness by de-sulpherising and de-oxygenising the steel. Other uses include in dry cell batteries, agriculture and heath. Demand for manganese is forecast to rise for at least the next 15 years, in line with steel production.
All things considered, Gulf’s project is definitely one to watch and we’ll be catching up on their progress later this year.