Magnesium Demand Predicted to grow at 6% CAGR
There’s nothing quite like the feeling you get when you watch a market sector that you have invested in begin to wake up and shine. It now looks as if magnesium is becoming one such glowing market sector.
Earlier this month the Financial Post ran a story covering the proposed sale of a magnesium-rich property owned by West High Yield Resources (TSXV:WHY) near Trail, BC. WHY plans to sell to American-based Gryphon Enterprises for US$750 million, and the Post noted the sale price is 46 times the current market value. After the deal was announced, WHY shares soared 956% and closed on October 5, 2017 at $2.00. On October 6, IIROC ordered that trading in the stock be halted, pending the clarification of company affairs.
Most of us are familiar with Milk of Magnesia as the traditional go-to for upset stomachs and those delightful magnesium strips that burned so brightly in chemistry class. Some of us are aware that magnesium is a vital element in human biology; helping to regulate some 300 bodily functions.
Most of us are completely unaware of magnesium’s role in steel fabrication as an alloy or its use as a magnesium alloy steel, which is stronger and 33% lighter than aluminium. Few of us know about new magnesium products such as wall board, which is superior to drywall because it is smoke, fire, water, mold and termite proof.
Other new magnesium products include magnesium cement, which is much stronger than traditional cement, and can last for thousands of years.
The magnesium-ion batteries currently under development have 12 times the energy density of the lithium-ion batteries currently used to power electric vehicles.
Research house Technavio predicts that between 2016 and 2020, magnesium demand will rise by a compound annual growth rate of 6%, driven largely by its use in automotive die casting. Manufacturers are also replacing more and more component parts made from steel and aluminium, parts like steering wheels, seat frames and gearboxes, with lightweight magnesium alloy steel, in a bid to improve fuel efficiency.
Magnesium is also starting to be used in other industries as a lightweight, more durable replacement for steel and aluminium. The Nikon D800, for instance, is manufactured using magnesium alloy steel.
One of the interesting aspects of the Technavio report is that it doesn’t take into account the effect of new product developments (magnesium wallboard, magnesium ion batteries or magnesium cement) will have on global demand.
At the moment, China produces close to 75% of the world’s magnesium supply. That is about to change, and several magnesium plays are currently on the market.
Equitorial is in a position to provide investors with access to two emerging markets, lithium and magnesium. Better known as a junior miner with three 100%-owned high-potential lithium properties under development, Equitorial also provides investors with exposure to magnesium through its recent joint-venture with Mag One, (CSE:MDD, FSE:304, OCTQB:MGPRF).
Mag One is located in Danville, Quebec, where it has access to 50 million tonnes of magnesium mineralized serpentine tailings at 23% magnesium, for US$1.00 per tonne. Like other savvy miners, Mag One is providing added value by developing products based on the material it will be processing.
The company has developed proprietary extraction techniques for both lithium and magnesium. Mag One has four business segments: Magnesium-based building panels; high-purity magnesium oxide and magnesium hydroxide and silica, magnesium metal and magnesium air batteries.
One of the company’s goals is to develop the proprietary technology that would allow it to produce magnesium at cost points that equal the price of aluminium. This will open the door to a much greater demand for magnesium, because magnesium metal is 33% lighter than aluminium. By driving down prices, the company will be able to go further faster in terms of magnesium replacing aluminium in car manufacturing.
Equatorial Explorations has invested C$1 million in Mag One in exchange for the right to participate in two 50/50 joint ventures with Mag One. The first is to build a modular production facility for the extraction of lithium and related products; and the second is to fund a production facility to produce magnesium metal and products.
Investing in Equitorial Exploration now provides you with exposure to both magnesium and lithium, and a safety net. Lithium is now the rechargeable battery material of record. Magnesium has the potential to replace it. If magnesium doesn’t become the next battery material of choice, there is the safety net of knowing that magnesium demand is forecast to grow at 6% CAGR until 2020, and the added benefit to be reaped from introducing new innovative products to the market.
Now, if only we knew why Gryphon is going to pay 46 times the market value of the magnesium deposit it is buying from West Yield Resources. There has to be a very good reason.
By Noel Meyer