Latrobe Magnesium Ltd (ASX:LMG) intends to expand its proposed Victorian demonstration plant in a bid to meet rising global demand for magnesium products.
The materials stock, which is developing a production plant in the Latrobe Valley using a world-first, patented process, will scale up to a plant that produces 10 times its nameplate annual magnesium output.
LMG's initial demonstration hub, which will produce 1,000 tonnes of magnesium a year, will move to a 10,000-tonnes-per-annum (tpa) model as the company fields new offtake enquiries and braces for manganese supply shortages.
Construction on the plant is expected to kick off in January next year.
Financial implications
Initially, Latrobe planned to ramp up the initial 1,000 tpa demonstration plant to a 3,000 tpa model.
But as China’s magnesium output becomes increasingly restricted and demand for the raw material skyrockets, the ASX lister has opted to leapfrog this stage and head straight to the 10,000 tpa demonstration plant.
Ultimately, the revitalised model is predicted to maximise labour economics and increase the plant’s operating profit.
The original 1,000 tpa plant is estimated to cost between $40 million and $45 million to erect, while Latrobe’s expanded demonstration model will require roughly $123 million to get off the ground.
To foot the bill, Latrobe is turning to its existing and imminent offtake agreements.
The magnesium stock expects to cover some $75 million of the costs through the contracts, which currently cover 8,000 tpa of 100% magnesium production.
What’s more, Latrobe has also received enquiries on another 2,000 tpa it’s yet to finalise.
Churning out 10,000 tonnes of magnesium product a year, the demonstration plant is forecast to generate $110 million in revenue and around $42 million in earnings before interest, taxes, depreciation and amortisation (EBITDA).
Those figures are up on the $93 million in revenue and $28 million in EBITDA predicted in Latrobe’s August presentation, thanks to better-than-expected market conditions and magnesium grades.
Latrobe modelled the new forecasts by extrapolating the financials tied to its proposed 3,000 tpa plant, and they’ll be the subject of a separate financial study that should take place over the next nine months.
From here, Latrobe’s main objective is to build to a 40,000 tpa plant, which should enter construction 12 months on from the hub’s maiden magnesium production.