Latrobe Magnesium - Developing an Innovative Magnesium Production Facility in Australia's Latrobe Valley

About Latrobe Magnesium

Latrobe Magnesium (ASX:LMG) is an Australian company developing a magnesium production plant in Victoria’s Latrobe Valley using its patented extraction process. The company intends to extract and sell magnesium metal and cementitious material from industrial fly ash, a waste product from brown coal power generation.

LMG has completed a feasibility study validating its combined hydrometallurgical and thermal reduction process for extracting magnesium metal. The company is currently constructing its initial 1,000 tonnes per annum magnesium plant, with commissioning targeted for late 2023. A larger scale 10,000+ tonne per annum commercial plant will follow shortly after.

The Latrobe Valley location provides immediate access to feedstock, infrastructure, and labor. LMG plans to sell the refined magnesium under long-term contracts to customers in the US and Japan. Currently, Australia imports 100% of its 8,000 tonnes of annual magnesium consumption.

The LMG project has significant environmental benefits. It recycles waste fly ash, avoids landfill and has low CO2 emissions. The company adopts the principles of an industrial ecology system.

Key Points from LMG's Latest Announcement

Amended USA Distribution Agreement

• LMG will now allocate all magnesium production from its 1,000 tpa demonstration plant and 10,000 tpa commercial plant to the US market.
• This increases offtake volumes for distributor Metal Exchange Corp (MEC) by 20% from both LMG plants.
• The 1,000 tpa demo plant will produce an extra 200 tpa for the US, boosting revenue by $1 million.
• The 10,000 tpa commercial plant will sell an additional 2,000 tpa to the US, adding $10 million in revenue.
• The additional volumes sold to the US were previously allocated to Japan. Exports to Japan will now start with LMG's proposed 100,000 tpa Malaysian plant.
• Selling all magnesium to the US captures higher pricing due to anti-dumping duties on Chinese imports.

Revised Production Timeline

• The 1,000 tpa demonstration plant commissioning is now targeted for late 2023, delayed by 6 months.
• Consequently, the 10,000+ tpa commercial plant completion is pushed back to December 2025.

Financial Upside

• The amended US distribution deal will boost annual revenue by $11 million across the two plants.
• This extra revenue is expected to increase EBITDA to over $50 million for the 10,000 tpa commercial plant.

Large and Growing US Magnesium Market

• The US consumes over 160,000 tonnes of magnesium per year, with demand growing from automotive use.
• Currently only one major US magnesium producer, which has been offline for upgrades since 2021.
• The US imports most magnesium but has had an anti-dumping duty on Chinese imports since 1954.
• Magnesium from Australia enters the US duty-free under a bilateral trade agreement.

Conclusion

The amended US distribution agreement provides Latrobe Magnesium with greater revenue certainty from its upcoming magnesium plants. Selling the full output to the US at favorable prices will maximize financial returns.

The multi-million dollar boost to EBITDA makes the 10,000 tpa commercial plant highly profitable on paper. Attractive project economics are positve for LMG's growth outlook and shareholder value.

The company is positioned to supply the vast US magnesium market at an advantageous time, with demand growing and domestic supply limited. LMG can fill a supply gap with a duty-free Australian product.

While commissioning timelines have slipped, this appears manageable considering the innovative technology and large scale production plans. The long-term growth narrative remains intact. LMG is on track to become a major global magnesium producer, with significant benefits from waste recycling.

The company offers investors exposure to an emerging industry with a proprietary process, and strong demand drivers. With its amended US distribution deal, LMG has reduced revenue risk and boosted the investment case. The project economics stack up well for investors looking for exposure to ethical manufacturing and the new energy economy.