Australian Magnesium Company Decide to Relocate Smelter to Middle East

Magnesium International Limited (MIL) has decided to concentrate on potential locations in Qatar, Egypt and the United Arab Emirates for its planned 88,000 tpa magnesium smelter following completion of a number of feasibility studies over the past three months.

In announcing the decision today, MIL’s Managing Director, Mr Gordon Galt, said “We have been comparing three sites in the Middle East with two Queensland sites since June this year. Our studies show that a profitable project can be established in Australia, but significantly better returns will be generated for shareholders from the Middle East sites. The key advantages of the area are:

  • low energy (gas and power) costs,
  • low labour and capital costs,
  • lower transport and logistics costs and
  • very favourable tax and duty regimes

With our proven Dow technology and these major cost advantages we believe that MIL can establish the world’s lowest cost magnesium smelter in the Middle East region.”

MIL’s offtake contract with ThyssenKrupp Metallurgie (TKM) will remain in place in the Middle East. “TKM fully supports the proposed move of the project. They have visited the three prospective sites and are confident that the project can be successful in any of these potential locations”.

“MIL will complete the site selection process in the next few months. During this period we will also finalise the selection of an EPC contractor, EIS consultants and a specialist debt adviser for the project. Funding for the work between final site selection and financial close will be jointly provided by MIL and MIL’s partner in the selected location. The target for financial close is Q3 of calendar 2005” Mr Galt said.

Feasibility Study Results

MIL completed detailed smelter feasibility studies for potential sites in the past three months and delivered the results to potential partners and Governments in each location. The smelter is proposed to be built in two stages, with the first stage to commence commissioning to 43,000 tpa capacity within two years from financial close and the second module being fully commissioned approximately three years later.

The Studies gave the following range of outcomes for the Middle East locations.

  • Ex works operating costs (mid 2004 USc/lb) 55 – 60
  • Project IRR, nominal after tax % 16 – 20
  • Return on equity, nominal after tax % 25 – 30
  • After tax NPV @ 8% discount, USDm 650 – 990

Capital requirements for the first smelter module are estimated as follows:

  • Capital Cost (mid 2004 USDm) 360m
  • Total Funding Required including fees, contingencies, and escalation (nominal USDm) 450 - 470m
  • Equity Required (nominal USDm) 180m

The above results were based on importing magnesite feedstock from MIL’s Australian mining tenements. MIL believes that there is considerable scope to further reduce costs by sourcing magnesite from within the region and deposits have been identified in Egypt, Turkey and Greece for further evaluation.

About Magnesium International

Magnesium International Ltd is the exclusive global licensee of Dow electrolytic magnesium smelting technology. Dow’s technology is the world’s most proven magnesium smelting technology and was developed and operated competitively by Dow Chemical in the USA over a period of 60 years. The Dow process has produced 3.5mt of primary metal over this period, which greatly exceeds production by any other primary magnesium technology.

Demand for magnesium is rising strongly because of magnesium’s intrinsic merit as the lightest weight structural metal for use in automobiles and as a result of good economic growth rates throughout many parts of the world. Magnesium’s strong light weight alloys assist auto makers to decrease greenhouse gas emissions and fuel consumption by reducing overall vehicle weight. This issue will become even more significant and topical with ratification of the Kyoto protocol now imminent.

Mr Galt stated that “MIL believes that its magnesium smelter project is the only new electrolytic smelter project in the world which is both at the stage of starting bankable feasibility and is supported by a long term offtake contract. The offtake contract is with ThyssenKrupp Metallurgie, one of Europe’s foremost metals traders. TKM will purchase 100% of the smelter’s output for 15 years.”

For more information on magnesium, click here.

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