Font size:
Quay Magnesium
Understanding magnesium in a tricky market
Despite being one of the world’s most abundant elements with huge growth potential, magnesium has proved to be a tricky and often expensive market to master. In layman’s terms, you can use it to de-sulphurise steel, in the aluminium industry and particularly to manufacture specialist magnesium alloys. These avenues alone suggest the huge market potential it possesses, but in order to harness this, we are going to need to come up with some seriously smart solutions for producing high quality alloys economically, reliably and expertly.
This is where Quay Magnesium Limited, an Australian publicly-listed company (ASX:QMG) producing quality magnesium alloys for a range of uses, particularly the automobile industry, steps in. Quay was formed about five years ago in the wake of failed and often expensive attempts at major magnesium projects by other companies. IRJ caught up with Peter Stuntz, Quay’s Chairman, to hear about how a recently signed Letter of Intent with a Chinese group, which allows Quay to acquire a 49 per cent beneficial interest in 15,000 tonne per annum output from a pure magnesium plant and linked half coke plant, might hold the key to further unlocking magnesium’s many lucrative macro drivers today.
Understanding magnesium
Stuntz begins to explain magnesium’s growth potential by focusing on the automobile industry where Quay has a strong focus, highlighting that we can eliminate 10 pounds or kilos of steel with three pounds or kilos of magnesium, in short, offering a 70 per cent weight reduction by substituting a steel part with a magnesium part.
“At the moment this has got big implications for things like pollution coming from exhaust emissions and fuel economy,” he says.
“I think the average car has around five kilos of magnesium in it, and there’s no reason why it shouldn’t have 50, or 100 or 150 kilos in it. It’s a fixture of the market that’s got order of magnitudes of growth and it’s all being driven by good fundamental reasons.”
Stuntz says that his initial attraction in becoming involved with Quay in China is down to the huge growth market perceived and the number of major projects built a decade or so ago which unfortunately failed to capitalise on it.
“They failed because they adopted a very capital-intensive method of production and that was the electrolytic approach. Noranda had big projects in Canada and Magnola, while Australian Magnesium Corporation had Stanwell— these were over a billion dollar projects,” he recalls.
“We’ve seen companies throw large amounts of money at the sector but it didn’t work. These things were dependent on large economies of scale and when it didn’t happen because of technology problems or cost blow-outs, the projects collapsed.”
As the Western world struggled for a handle on magnesium production methods, China was developing very cost-effective alternatives based on older technologies long-discarded by the West.
“The process was actually used during and after WWII, then it fell away, mainly because it’s very labour-intensive which was not suited for the West,” Stuntz explains.
“It was also energy intensive but the two things that China had were (a) lots of cheap labour, and (b) they started using waste energy, particularly from coke ovens, to fuel this process.”
This efficient method of magnesium production—cost-effective in terms of operating costs and capital costs per tonne, allowed China’s magnesium industry to flourish and from no notable industry in the mid-90’s, today the nation dominates the industry globally.
“China now produces about 85 per cent of the world’s magnesium and the other bits of the industry which have survived tend to be subsidised social metal. There’s some in Israel, Russia and the US,” Stuntz says.
“So you have a booming Chinese magnesium industry, but with limited ability to alloy properly. To use magnesium alloy properly in some applications it’s quite dependent on high quality, and that’s one of the things we have always emphasised at Quay.”
It is recognising and capitalising on this market trend which has placed Quay in the enviable position it holds today.
Quality alloy production in China
By taking Western quality alloy standards and building its production plant in Nanjing, China, Quay is able to run off Chinese feedstock and produce alloy to the highest Western standards. With the plant, know-how and certainly the market demand in place, the company has gone about firming up its practices to ensure long-term success.
“That’s why this Letter of Intent and this proposed acquisition is so important for us,” Stuntz says.
“This is a game-changer for us because all of a sudden we can rely on that output to put through our alloy plant.”
This Letter of Intent allows Quay greater reliability for its future feedstock, further establishing its relationships with both the feedstock supplier in China and its prospective customers worldwide. Essentially, by signing this letter, the company is declaring its long-term commitment to working with the Chinese group and building strong foundations before potential additional feedstock agreements could follow in the future.
“Our alloy plant then has the benefit of more through-put and greater reliability of process, which is positive. The plant that we’re acquiring the half interest in also has its own economics that are attractive as well,” Stuntz says.
“It’s at the lower end of the cost curve and a viable investment in its own right but, when you put the two together, they’re both very good for us.”
After the acquisition
The turning point presented by Quay’s Letter of Intent has, of course, had great bearing upon their goals for the coming months. Equally, it comes as no surprise that these goals are exciting and now more attainable than ever before.
“For us, the goal is to assimilate this primary magnesium plant in the proposed acquisition; there’s ramping that up to capacity which is obviously a priority, logistical issues from that plant to our plant—it’s about 1,000 kilometres away from Quay’s Nanjing plant—to address, and the supply chain has to be established,” Stuntz explains, noting that these are likely the goals for the coming six months.
“What happens after that? We’d have 15,000 tonne of feedstock and an alloy plant with a 25,000 tonne capacity so at the moment we’re sourcing 10,000 tonne out of the market and we can continue to source it from there, but our preference would be to take more primary metal capacity into our system.”
Ideally, Quay would like to reach 25,000 tonne of feedstock and 25,000 tonne of alloy, which brings the company to future potential magnesium acquisitions.
“At the same time (it was built), the site in Nanjing was actually designed to expand to 50,000 tonne. We have sufficient land. The plant was always intended to be a 50,000 tonne facility,” Stuntz says.
“That’s obviously a strategic goal that we want to pursue in the longer term.”
Magnesium continues to offer massive market growth potential, not least in the automobile industry. Quay Magnesium is sitting on a proven effective method and operational magnesium projects and continues to firm up its relations. The macro drivers towards reduced greenhouse gas emissions and better fuel economy are clear. It’s a great time to be a company offering truly high quality alloy product, and with this Letter of Intent, Quay Magnesium is ready to enjoy the growth potential the magnesium industry worldwide has in store.
Despite being one of the world’s most abundant elements with huge growth potential, magnesium has proved to be a tricky and often expensive market to master. In layman’s terms, you can use it to de-sulphurise steel, in the aluminium industry and particularly to manufacture specialist magnesium alloys. These avenues alone suggest the huge market potential it possesses, but in order to harness this, we are going to need to come up with some seriously smart solutions for producing high quality alloys economically, reliably and expertly.
This is where Quay Magnesium Limited, an Australian publicly-listed company (ASX:QMG) producing quality magnesium alloys for a range of uses, particularly the automobile industry, steps in. Quay was formed about five years ago in the wake of failed and often expensive attempts at major magnesium projects by other companies. IRJ caught up with Peter Stuntz, Quay’s Chairman, to hear about how a recently signed Letter of Intent with a Chinese group, which allows Quay to acquire a 49 per cent beneficial interest in 15,000 tonne per annum output from a pure magnesium plant and linked half coke plant, might hold the key to further unlocking magnesium’s many lucrative macro drivers today.
Understanding magnesium
Stuntz begins to explain magnesium’s growth potential by focusing on the automobile industry where Quay has a strong focus, highlighting that we can eliminate 10 pounds or kilos of steel with three pounds or kilos of magnesium, in short, offering a 70 per cent weight reduction by substituting a steel part with a magnesium part.
“At the moment this has got big implications for things like pollution coming from exhaust emissions and fuel economy,” he says.
“I think the average car has around five kilos of magnesium in it, and there’s no reason why it shouldn’t have 50, or 100 or 150 kilos in it. It’s a fixture of the market that’s got order of magnitudes of growth and it’s all being driven by good fundamental reasons.”
Stuntz says that his initial attraction in becoming involved with Quay in China is down to the huge growth market perceived and the number of major projects built a decade or so ago which unfortunately failed to capitalise on it.
“They failed because they adopted a very capital-intensive method of production and that was the electrolytic approach. Noranda had big projects in Canada and Magnola, while Australian Magnesium Corporation had Stanwell— these were over a billion dollar projects,” he recalls.
“We’ve seen companies throw large amounts of money at the sector but it didn’t work. These things were dependent on large economies of scale and when it didn’t happen because of technology problems or cost blow-outs, the projects collapsed.”
As the Western world struggled for a handle on magnesium production methods, China was developing very cost-effective alternatives based on older technologies long-discarded by the West.
“The process was actually used during and after WWII, then it fell away, mainly because it’s very labour-intensive which was not suited for the West,” Stuntz explains.
“It was also energy intensive but the two things that China had were (a) lots of cheap labour, and (b) they started using waste energy, particularly from coke ovens, to fuel this process.”
This efficient method of magnesium production—cost-effective in terms of operating costs and capital costs per tonne, allowed China’s magnesium industry to flourish and from no notable industry in the mid-90’s, today the nation dominates the industry globally.
“China now produces about 85 per cent of the world’s magnesium and the other bits of the industry which have survived tend to be subsidised social metal. There’s some in Israel, Russia and the US,” Stuntz says.
“So you have a booming Chinese magnesium industry, but with limited ability to alloy properly. To use magnesium alloy properly in some applications it’s quite dependent on high quality, and that’s one of the things we have always emphasised at Quay.”
It is recognising and capitalising on this market trend which has placed Quay in the enviable position it holds today.
Quality alloy production in China
By taking Western quality alloy standards and building its production plant in Nanjing, China, Quay is able to run off Chinese feedstock and produce alloy to the highest Western standards. With the plant, know-how and certainly the market demand in place, the company has gone about firming up its practices to ensure long-term success.
“That’s why this Letter of Intent and this proposed acquisition is so important for us,” Stuntz says.
“This is a game-changer for us because all of a sudden we can rely on that output to put through our alloy plant.”
This Letter of Intent allows Quay greater reliability for its future feedstock, further establishing its relationships with both the feedstock supplier in China and its prospective customers worldwide. Essentially, by signing this letter, the company is declaring its long-term commitment to working with the Chinese group and building strong foundations before potential additional feedstock agreements could follow in the future.
“Our alloy plant then has the benefit of more through-put and greater reliability of process, which is positive. The plant that we’re acquiring the half interest in also has its own economics that are attractive as well,” Stuntz says.
“It’s at the lower end of the cost curve and a viable investment in its own right but, when you put the two together, they’re both very good for us.”
After the acquisition
The turning point presented by Quay’s Letter of Intent has, of course, had great bearing upon their goals for the coming months. Equally, it comes as no surprise that these goals are exciting and now more attainable than ever before.
“For us, the goal is to assimilate this primary magnesium plant in the proposed acquisition; there’s ramping that up to capacity which is obviously a priority, logistical issues from that plant to our plant—it’s about 1,000 kilometres away from Quay’s Nanjing plant—to address, and the supply chain has to be established,” Stuntz explains, noting that these are likely the goals for the coming six months.
“What happens after that? We’d have 15,000 tonne of feedstock and an alloy plant with a 25,000 tonne capacity so at the moment we’re sourcing 10,000 tonne out of the market and we can continue to source it from there, but our preference would be to take more primary metal capacity into our system.”
Ideally, Quay would like to reach 25,000 tonne of feedstock and 25,000 tonne of alloy, which brings the company to future potential magnesium acquisitions.
“At the same time (it was built), the site in Nanjing was actually designed to expand to 50,000 tonne. We have sufficient land. The plant was always intended to be a 50,000 tonne facility,” Stuntz says.
“That’s obviously a strategic goal that we want to pursue in the longer term.”
Magnesium continues to offer massive market growth potential, not least in the automobile industry. Quay Magnesium is sitting on a proven effective method and operational magnesium projects and continues to firm up its relations. The macro drivers towards reduced greenhouse gas emissions and better fuel economy are clear. It’s a great time to be a company offering truly high quality alloy product, and with this Letter of Intent, Quay Magnesium is ready to enjoy the growth potential the magnesium industry worldwide has in store.
del.icio.us
Digg
NewsVine
Mixx
FaceBook
Twitter
Email this article
Print
Plain text
