Element 25 Ltd (ASX:E25) has revised its shipping strategy for its third manganese delivery with a switch from Handymax-size vessels to larger Supramax ships in response to a sharp spike in global shipping costs, caused predominantly by COVID-19.
The next shipment of manganese concentrate, which is due to depart the Utah Point facility at Port Hedland on around November 27, 2021, will be the third shipment from E25’s wholly-owned Butcherbird Manganese Project in the Pilbara region of Western Australia.
Ore will be delivered to the company’s offtake partner, OM Materials Pte Ltd, a wholly-owned subsidiary of ASX listed company OM Holdings Limited.
Revised strategy
In line with Element’s revised strategy, the shipment will be transported by a Supramax vessel with a nominal cargo size of 47,000 tonnes of manganese concentrate.
The shipping contract allows additional material to be included at a reduced tariff if the laycan (period before the chartered ship arrives) allows.
The ship has been booked at a rate in the low US$30’s per tonne, a reduction of approximately 45% from the previous peak tariff.
This reduction in freight rate charges equates to an effective increased FOB price of approximately US$0.75/dry metric tonne unit.
High tariff prices are associated with the congestion in global shipping caused by COVID-19, directly impacting gross margins for the first and second shipments of manganese from the project.
Shipping congestion raises tariffs
The Baltic Dry Index, which is seen as a proxy for global shipping costs, has been at historically record high levels in 2021, reflecting the shift in shipping pressures.
Timing for the first two shipments from the project coincided with these elevated levels, which resulted in higher cost of sales, impacting Element 25’s profitability from operations as detailed in the company’s September 2021 quarterly report.
The Baltic Dry Index has begun to normalise and E25 expects this trend to continue in coming months, although recovery will be subject to the ongoing reduction in COVID related restrictions, which is anticipated to result in the freeing up of capacity in the global shipping fleet.
Project focus
Element’s operations team will continue to focus on delivering nameplate production, which is anticipated by the first quarter of 2022.
The business development team is focusing on the next stages of a multi-stage development strategy, including a Stage 2 expansion of the concentrate business followed by a Stage 3 development to convert the concentrate material into high purity manganese sulphate (HPMS) for electric vehicle (EV) batteries to power the global transition away from fossil fuel-powered mobility.
Manganese is emerging as an increasingly important ingredient for EV batteries, with potential supply constraints for nickel and cobalt forcing battery manufacturers to look to high manganese cathodes to produce the vast amount of cathode material required by the EV industry in coming years.
Element 25 believes the project is ideally placed to feed this potential demand, with advanced flowsheet development work undertaken in 2019 and 2020 confirming a simple leach process for E25 ores which, when combined with offsets, will target the world’s first Zero-Carbon Manganese for EV cathode manufacture.
The company anticipates releasing a scoping study in Q4 2021 prior to the release of the pre-feasibility study in the first half of 2022.
EV market to expand further
Cost reduction is a major commercial driver for battery electric vehicle (BEV) companies seeking to increase sales.
Volkswagen’s Power Day presentation on BEVs suggested a 50% cost reduction for batteries with cell design (-15%), production process (-10%), cathode/anode materials (-20%) and battery systems (-5%) are driving the change.
Global BEV penetration is expected to rise to 15.2% by 2025 and 39.5% in 2030 – led by Europe and China, according to Morgan Stanley (NYSE:MS)’s latest report.
The main driver in the cathode materials is a shift to a high manganese cathode material for the volume production, which is expected to underpin strong demand growth for battery-grade manganese sulphate.
Current estimates put demand by 2030 at 13 times current supply and a deficit of 1.3 million tonnes even factoring in planned supply increases.
About the company
Element 25 is developing a world-class manganese resource at the 100%-owned Butcherbird Project in Western Australia to produce high-quality manganese concentrate for export markets.
The Butcherbird Manganese Deposit is Australia’s largest onshore manganese resource comprising large tonnages of near-surface manganese oxide ore in seven deposits.