Vancouver, BC / November 6, 2014 / Investors may think an article regarding industrial minerals, in this case magnesite, of limited interest. That would be a mistake. Unlike precious metals, this important commodity is critical and displays an exceptional growth profile. And since there are currently only two magnesia deposits in North America, and the main US supplier, China, is expensive with its production waning, new production opportunities should be viewed as compelling.
The total magnesia market is expected to grow annually by 3.2% to 2018. The largest consumption will be for refractories purposes; a diverse range of industries, but their consumption is dominated by iron and crude steel (73%) and cement and lime (13%).
“With a historic inferred magnesite resource estimate (non 43-101 compliant) of 22.5 million tonnes, we believe our Driftwood Creek property potentially represents a long-term predictable supply,” states Jared Lazerson, CEO of MGX Minerals (CSE: XMG). Given the cost of Chinese imports and their lowering quality, we believe that MGX represents a unique opportunity to replace a large share of these imports to US clients. Our competitive advantages provide the Company with an outstanding opportunity to fast track into production with start up planned for the first half of 2016.”
At varying applied heats, there are three forms of magnesite:
– Heat applied at 800-1000 degrees Celsius, water absorptive CCM or Caustic Calcined Magnesia is produced. In the US, environmental uses are noted – water treatment smokestack gas scrubbing accounting for 43%. 23% is used for animal feed and fertilizer. The balance finds applications in manufacturing (rubber and electrical products), construction (oxychloride and oxysulfate cements and MgO based wallboard), as well as in medicines and cosmetics.
– At 1650-1800 degrees Celsius, DBM or Dead Burn Magnesia is produced. As the most popular form, it is used for industrial applications – primarily in refractory uses, which require high temperature thresholds as in its primary use as a lining for furnaces in the steel industry.
– At 2250 degrees Celsius, the magnesia produces EFM or Electro Fused Magnesia and is the highest grade also used in steel production.
In the coming year, the World Steel Association’s forecast sees global steel production increasing by about 3.3 to 3.4 percent. This would be in line with the 3.5% growth, seen in 2013.
MGX’s Driftwood property was acquired in July 2014 for 900,000 shares and $50,000. The property has an area of 326 ha and is known to host significant magnesite mineralization. As part of the agreement, MGX is required to spend $300,000 on exploration and development by July 1 2017. Managements’ plan is to concentrate, initially on DBM as large US industry users has a strong desire to source North American suppliers. As that initiative grows, MGX will consider adding CCM users as soon as practicable and EFM users in future.
Depending on grade, DBM sells per tonne for $350 (90%), $450 (94-96%) and $600 (97.5%). The US imports almost 450,000 tonnes with DBM and EFM making the majority at roughly 300,000 tonnes. Total US usage of DBM and EFM is between 300,000 and 400,000 tonnes. The disparity is due to a lack of USGS figures so the figures are from industry.
For context, Martin Marietta Magnesia, a division of integrated cement and specialty parent Martin Marietta Inc (MLM) produces about 300,000 tonnes annually of Magnesia products from sea water in a complicated and chemical / electrolytic process with high energy costs.
Seawater contains less than 9% magnesium, which is about 1/3 of MGX’s Magnesium content. The MgO product Martin Marietta produces is very pure and expensive so while MGX may be more cost-effective it cannot achieve MLM’s purity. MLM’s is generally in the 96-99% purity range in a variety of product types and MGX is focused in the 90-96% range for Dead-burned MgO (DBM) only. That is one the reasons why MGX is strategically focused on replacing mid-grade imported DBM from China and not competing directly with the largest US producer of MgO.
MGX’s Driftwood Property is in excellent position to move toward production. In September 2014, the Company completed a drill program to delineate an initial mining block to support initial production and has initiated an N.I. 43-101 Compliant Resource Estimate. In a recent press release, the Company released historical estimates by two previous companies (non N.I. 43-101 compliant) Kaiser Resources Ltd. (Morris, 1978) estimated a non N.I. 43-101 compliant Inferred resource of 22.5 million tonnes of magnesite using a specific gravity of 2.5 and Canadian Occidental Ltd. (Rodgers, 1989) estimated a non N.I. 43-101 compliant Inferred resource of 29.4 million tonnes of magnesite at a specific gravity of 3.0.
Mineralization at Driftwood has been traced at a 1900 metre strike length, open in both directions and at depth. There are two high-grade mineralized zones (Eastern and Western) previously delineated. As well, there is in place infrastructure with access to road, rail, labor and electricity.
The recent drill program entailed eight holes 30 metres apart representing 1437 feet, which will form the basis of the N.I. 43-101 now underway. Once complete, the Company will submit permit applications and production could potentially commence in early 2016.
The Bottom Line
MGX is a simple yet compelling investment opportunity. While the Driftwood Property alone should engender rising investor interest, it is merely part, albeit an important component, of MGX’s investment drivers. As the Company develops plans to bring Driftwood into production by early 2016, it is constantly on the hunt for similar exceptional growth opportunities.
As magnesia production wanes in China, North American customers (and investors) should look favourably on new production alongside the other two properties, including BC’s Baymag, owned by the private and global Refratechnik Group. Baymag contains magnesite reserves of more than 50 million tonnes. Production from Baymag tends to be mainly high-grade magnesite and is classed as the best deposit in the world.
Baymag is also geologically relevant for MGX as the property is less than 100 km away from Driftwood.
Interesting to note that of the ten best magnesite properties in BC, MGX currently has seven of those under lease and is looking to add to that total.
Alongside Chinese production declines is the obvious cost-effective advantage North American production has over China. MGX will be able to get magnesite to rail and then throughout North America, an obvious advantage over the cumbersome and expensive shipping from China. As 60% of supply to North America now comes from China, it will likely decline or be replaced by potential production such as Driftwood.
Between drill programs, completed and ongoing, N.I. 43-101 resource study underway, permitting applications to come and a mine plan, MGX is moving rapidly to realize its 2016 production target.
The shares trade at $0.29 and there are 27.5 million shares evidencing a market cap of just under $7 million. Management has a large position, which should add to investor comfort.
Previous work on the Driftwood site shows a great potential reserve and coupled with the supply/demand profile and the growth of global steel production, savvy investors would do well to dig into MGX Minerals.
Bob Beaty for The Bottom Line Report.
MGX Minerals Inc.
1080 Howe St.
Vancouver, BC V6C 2T1
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