Magnesium International Smelter Location Update

Key Points

  • Two Central Queensland sites are viable and both offer better economics than Port Pirie in South Australia; discussions continuing with Queensland Government
  • Source of magnesite secured for a Central Queensland smelter
  • MIL has been invited to present smelter proposals for sites in two countries in the Persian Gulf region and one in Egypt
  • ThyssenKrupp Metallurgie fully supports the potential offshore locations

Background

Magnesium International Limited (MIL) has progressed the evaluation (announced in late 2003) of potential sites for its Dow-technology based magnesium smelter project. The project involves the construction and operation of an 88,000 tpa capacity magnesium metal smelter. Dow technology is the world’s most proven magnesium production process and MIL holds the exclusive world wide licence for the technology. The project is supported by a 100% offtake agreement with ThyssenKrupp Metallurgie (TKM).

Evaluation of Queensland Smelter Sites

MIL’s evaluation focussed on the availability and pricing of power, magnesite feedstock and gas at potential smelter sites in Queensland. Indicative term sheets were received from three Queensland power providers. Two sources of magnesite feedstock were investigated, both within 80 kilometres of Rockhampton and both with ready access to road and rail transport. Gas pricing was obtained from two potential suppliers.

The evaluation has established that two smelter sites in Central Queensland are viable, ie Stanwell or Callide. Both sites are environmentally suitable and smelter construction cost will be similar at either location. Both sites also allow direct connection to the respective power station without having to use the power grid, thus eliminating distribution charges and transmission losses. At this stage MIL is unable to express a final preference for either site pending further discussions with the Queensland Government.

MIL has secured a magnesite feedstock supply for a Central Queensland smelter by negotiating a Heads of Agreement with Gympie Gold (receivers and managers appointed, voluntary administrator appointed) to purchase eleven current mining leases at Princhester, which is north west of Rockhampton. These leases contain magnesite which is exposed in many locations at surface and which has previously been tested and found to be suitable as a feedstock for the production of magnesium metal. MIL has also applied for exploration tenements surrounding the Princhester leases.

Comparison with Port Pirie Site

Both potential Central Queensland locations will have a significantly reduced operating cost structure compared to Port Pirie, with savings in each of the major cost areas of power, gas and magnesite feedstock. The costs of consumables other than power, gas and magnesite feedstock are evaluated as being similar in either Central Queensland or Port Pirie. Smelter construction cost is now assessed as being similar in either Queensland or South Australia. Overall the Central Queensland sites have better economics than the Port Pirie site.

MIL will now conduct detailed discussions with the Queensland Government. If these discussions are satisfactory one of the Central Queensland sites will become the preferred Australian site for the MIL smelter.

Other Smelter Site Investigations

MIL’s Directors initiated a global evaluation of smelter sites to run in parallel with the Queensland evaluation early in 2004. This evaluation and the considerable strengthening in global magnesium markets over the past six months have led to MIL being invited to submit proposals to construct a Dow technology smelter at sites in two countries in the Persian Gulf area and one in Egypt. These proposals are currently in an advanced state of preparation and will be submitted to relevant organisations in these countries by the end of June 2004. TKM has visited the potential sites with MIL and has extended the support of its 100% offtake agreement for the smelter to those locations.

The principal attractions of the offshore locations are the very attractive costs of power, gas, labour and smelter construction. These costs all appear to be lower than the costs for these items which are available in Australia. Significant advantages also exist in reduced logistics and duty costs. MIL’s Directors have assessed the availability of equity and debt capital for these locations and believe that funding for construction and operation of the smelter will be available.

Magnesite feedstock for an offshore smelter could be supplied from Australia (from MIL’s South Australian, Northern Territory or Queensland tenements) or from the local region (extensive magnesite deposits are present in Turkey and Greece and both countries currently export magnesite products to Europe).

Next Steps

MIL will make a final decision on smelter location in the third quarter of 2004. A preferred Australian site will be selected following further discussions with the Queensland Government and this will then be compared with the best offshore site. A bankable feasibility study, an Environmental Impact Study and final financing stages will then be completed for the chosen location.

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