Latrobe Magnesium Ltd (ASX:LMG)'s revenue forecast has been buoyed by two supply agreements into Japan and North America and a strong projected price on the commodity.
The twin forces of strong demand from the US and Japanese markets and a resurgent price have combined to improve the company’s projected EBITDA on its proposed plant.
Chinese supply crisis
International Magnesium Association (IMA) advice on the Chinese magnesium market indicates strong prices following a high of US$10,200 following the supply crisis and a dip to US$5,400.
In the week to November 12, the magnesium price rebounded following demand from Chinese downstream processing plants. The current price, US$6,150 per tonne, is expected to hold – indeed, most producers expect to see the price rise as demand continues.
LMG’s revenue estimates are based upon the June 2021 price of US$3,250 per tonne, before the China supply shortage commenced in September 2021.
If the current price holds, it will increase LMG’s estimate of EBITDA for its 10,000tpa plant by some A$56 million.
Offtake agreements
The company’s long-standing agreements with Metal Exchange Corporation (MEC), signed in June 2016, and the Advanced Material Corporation of Japan (AMCJ), one of Tokyo’s largest titanium and magnesium trading houses, signed in March 2016, are set to pay dividends.
Both the Tokyo company and MEC – with the latter to become LMG’s exclusive distributor in the USA – have committed to a minimum of 40% of the plant’s planned production, or 4,000 tonnes per year. The distribution agreement covers North, Central and South America and the Caribbean in the aluminium market.
MEC has also signalled an appetite to provide funding to LMG to expand its plant.
Supply diversification
North and Central America currently take in 160,000 tonnes of magnesium a year, a figure that will only increase with greater use of magnesium by the motor vehicle industry.
Most of this has to date been sourced from China.
Both the US importer and the Japanese Magnesium Association are keen to diversify their magnesium supply chain.
US anti-dumping duties on imported Chinese magnesium will make LMG’s magnesium competitive – under the USA-Australia fair trade agreement, magnesium produced in Australia is exempt from this import duty.