Mesa Minerals Limited
Manganese Ore Market Context


Overview

Over the next five years the pricing prospects for medium to high grade manganese oxide ores should remain very favourable for miners. There are a number of factors that will support continued high prices over this period and these include:

  • Steadily increasing per capita consumption of steel in the developing world that is driven by population numbers as much as by increased prosperity and hence is somewhat resistant to economic downturn;
  • The market for all grades of stainless steels are expected to increase faster than steel in general, thus increasing the demand for manganese and nickel alloys;
  • The new ore sources that are being developed and brought on gradually are not of a size that will fully satisfy demand and are at a much higher production cost thus placing a floor to some extent under future price declines; and
  • The grade profile of ores available is shifting downwards, requiring more blending and thus higher premiums for higher grade ores.

Looking further forward, we would expect to see a continuation of these trends, albeit with the short term fluctuations that are inevitable, and a move towards processes that can efficiently extract manganese out of the lower grades of manganese ore that are more abundant.

In this context, the prospects for the medium grade ferruginous ores available from Mesa’s mining leases in the Pilbara district of Western Australia are quite positive. At a targetted grade of 42% Mn, this ore will sit just under the current high grade cut off of 44% Mn and, subject to iron content considerations, is an ideal material to blend up the low grade ores typically seen in China, India and other Asian countries having manganese alloy production capacity.

Mesa’s cash flow generation prospects from ore sales over coming years will depend upon a number of factors other than the general market context and these include:

  • The level of success achieved by its production joint venture with Auvex, in mining and shipping the ore that is readily observable at Ant Hill and Sunday Hill;
  • The level of success achieved in drilling out and proving up additional ore from the two mining tenements;
  • The efficiency of the mining, crushing and beneficiation processes employed; and very importantly
  • The level of success achieved in establishing a long term sales arrangement with a manganese alloy producer for whom the high iron content of the ore (ie, presently targetted at 10% Fe) is seen as a positive factor rather than a negative one.


Historic Pricing

As the grade of traded manganese ores varies greatly, pricing has historically been quoted in US dollars per percent of contained manganese landed at buyer’s port. This pricing basis appropriately compensates the buyer for the proportionately increased handling and logistics costs of a lower grade ore relative to higher grade ore.

Historically, medium and lower grade ores have also incurred a discount to high grade ores to compensate the buyer for their higher processing costs. However, because of a disconnect between miners and end users, this discount facet of the pricing mechanism works inefficiently with lower grade ores that cause no processing inefficiency, or are in fact beneficial on balance, incurring the discount inappropriately. As the size of the discount can be very significant in time of abundant ore supply, this pricing mechanism will tend to treat a producer of non-high grade ores unfairly where those ores do not cause detrimental effects in processing.

In recent years, the trend in pricing of metallurgical lump manganese oxide ore, which is the predominant traded category of ore, has seen a dramatic increase due to the factors discussed above as shown by the following chart:

Indications from enquiries and published commentary are that the pricing levels attained in the first quarter of 2008 will be maintained for at least the balance of this year. Opinions on pricing levels for 2009 and 2010 generally are weighted towards a continuance of shortages of higher grade ores, but with prices somewhat moderated by new supply coming on during these years.

It is Mesa’s view that the combination of demand and supply side factors noted above will continue to hold manganese ore prices at historically high levels and increasingly force a differentiation in pricing based on product grade. Additional information regarding the pricing of EMD can be found by reference to the following websites:

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