Vancouver-based MGX Minerals well positioned to become British Columbia’s leading magnesium producer
It’s used in everything from next-generation batteries to cutting-edge electronics and advanced automobile and aerospace designs. In the constant search for lighter, more energy efficient and environmentally friendly materials, magnesium may be the metal of the future. British Columbia is well positioned to capitalize on the trend, and Vancouver-based MGX Minerals Inc. (CSE: XMG) is poised to become the province’s dominant producer of magnesium and related products.
Manufacturers see magnesium’s potential as a leading lightweight material because its density is 30 per cent less than aluminum, one-quarter that of steel, and about the same as many plastics. Ease of recycling also makes it a more ecological alternative to similarly light-weight plastics derived from petroleum. The automobile industry is starting to use more magnesium in various auto parts due to the looming Corporate Average Fuel Economy (CAFÉ) standards in the United States and European Union emissions standards.
In the clean-technology sector, the magnesium-ion battery is one of the hottest innovations today because it is considered safer, less expensive and significantly more powerful than a lithium-ion battery. In a promising sign for the potential of magnesium-ion batteries, scientists at the Lawrence Berkeley National Laboratory in California discovered last fall that a molecular characteristic that once cast doubt on the potential for magnesium-ion batteries is not a barrier to development.
Tesla electric car founder Elon Musk stated last year that Tesla’s $5 billion electric battery “gigafactory” could be converted easily to manufacture magnesium-ion batteries if necessary. Toyota has been studying the technology for years. “The potential is definitely there,” Nikhilendra Singh, a senior scientist at Toyota told MIT Technology Review magazine in 2012. “Overall, we’re very excited.”
MGX Minerals sees resource extraction as only the first step in monetizing industrial minerals, says chief executive officer Jared Lazerson. As revenues grow, he adds, the company plans to vertically integrate into value-added products, including light, strong magnesium metal and magboard, a drywall replacement for the construction industry.
MGX is now entering the formal permitting process for its flagship, 326-hectare Driftwood Creek magnesium project in southeastern British Columbia. It hopes to secure construction financing on a 70/30 debt-equity basis by the end of 2015, with an eye to beginning production in the first half of 2016.
Based on recent drill results, Driftwood Creek could be one of the best undeveloped magnesite deposits in North America, says Lazerson. “There’s a lot of magnesite there,” he adds. “Based on the historical estimates and what we have been able to verify so far, it’s a 50-year resource, assuming 250,000 tonnes per year of production. That’s about $35 million per year in revenue.”
Magnesite from Driftwood Creek will be used primarily to produce dead burned magnesia. DBM is a refractory material, used primarily to line furnaces in the steel industry. Initially, MGX plans to sell about 100,000 tonnes of DBM into the U.S. market.
The characteristics and location of the property promise to pave the way to production relatively quickly, says Lazerson. The drill results and the property’s large sections of mid- to high-grade ore indicate that the deposit is well suited to open pit extraction, he notes. And because there will be no processing on site and there are no water sources nearby, the likelihood of an environmental assessment is reduced. “The advantage of this project,” he adds, “is it’s near cash flow.”
China is by far the largest producer of DBM, accounting for about 80 per cent of the world’s total output of about 8 million tonnes a year. While much of it is used domestically, China exports about 230,000 tonnes a year to the United States – almost a third to a half of the 350,000 to 450,000 tonnes used in the U.S. annually. But China’s magnesia industry is maturing and the Chinese government’s once-expansive export policy is becoming more restrictive, resulting in limits on growth and a movement to lower quality. This shifting landscape, noted Lazerson, is creating an opportunity to replace a large share of U.S. imports with DBM produced in B.C.
Roskill Information Services, the London-based minerals and commodities consulting firm, estimates that the total magnesia market will grow by 3.2 per cent annually to 2018. Demand for DBM, it predicts, will be driven by expected annual growth in crude steel production
Guided by strong management team and board with deep experience in geology, financing and corporate law, Lazerson says MGX is pursuing a strategy of acquiring and developing industrial mineral deposits in western Canada that offer near-term production potential, minimal barriers to entry, and low initial capital expenditures.
In 2013, the company acquired the Fran Gold Property, 60 kilometres south of Fort St. James, B.C., and 30 kilometres northeast of the successful Mt. Milligan gold mine, the largest new copper and gold mine in B.C. With its proximity to Mt. Milligan, says Lazerson, the 10,000-hectare Fran Gold property is one of the best gold exploration plays in the province, with numerous gold targets within the main zone. While the gold market remains challenging for the moment, he adds, the company is watching the price of gold very closely.
In early 2015, the company expects to begin exploration on its third major venture, the 1,084-hectare Longworth Silica Property, listed by the British Columbia Geological Society as one of the top silica occurrences in the province. Lazerson and his team plan to pursue the same rapid development plan with Longworth as they did with Driftwood Creek.
Under a joint-venture agreement with Zimtu Capital Corp. and Electra Gold Corp., MGX Minerals can acquire a 50-per-cent undivided interest in the property by incurring $100,000 in exploration expenditures (including eight drill holes) within 12 months and completing an industry-compliant mineral resource estimate within 18 months. The transaction is still subject to approval by the TSX Venture Exchange and the Canadian Securities Exchange. MGX has also retained ALS Minerals of North Vancouver to carry out a frac sand analysis. But “we’re mostly focused on metallurgical-grade silicon,” says Lazerson, “which gets a premium price.”
About 70 per cent of MGX stock is in the hands of six members of the management team and board of directors, and that makes the tightly held company very focused on shareholder value, says Lazerson. “We are just very good,” he notes, “with how we manage our cash.”
The company achieves significant economies, in part, through a very hands-on management approach. Lazerson says he spends most of his time in the field. “There’s a big advantage to having your CEO in the field,” he adds. “Ninety-nine per cent of guys don’t do that.”
MGX Minerals Inc.
1080 Howe St. Suite 303 Vancouver, BC V6C 2T1
Tel: 604.681.7735 www.mgxminerals.com
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