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With its recent name change from Roche Deboule Minerals, American Manganese Inc. now clearly states the business in which it expects to truly make its name. Manganese is another one of those metals that most people may have heard about but probably couldn't distinguish from magnesium. Without manganese, however, not much could be built or made in the modern world, and that's the opportunity that makes American Manganese (AMY) such an interesting investment story. Sitting on over10 billion pounds worth of indicated and inferred manganese�"currently trading at $1.31/lb in Arizona�"gives the company the largest known low-grade deposit of manganese in the United States, according to the US Bureau of Mines, and the largest potential source of the metal outside of China. We spoke with Larry Reaugh, AMY's president, to get the big picture on how his company could play a very important role in re-establishing domestic production of this key metal, which the US now has to rely on foreign sources for its supply.
ResourceIntelligence: Going from Roche Deboule to American Manganese is an interesting name transition, Larry. What's the story behind that?
LarryReaugh: Roche Deboule is the name of a rather well-known Iron-Oxide-Copper-Gold (IOCG) property in B.C. which we still own. It was the core holding of AMY before we decided to make a strategic change in the direction of the company and pursue a commodity we thought would have a greater demand in the coming years.
RI: So how did you decide to get into the manganese business?
LR:In 2006-2007 I started looking around at the types of metals which appeared to be in short supply, at least here in North America, and realized that there was no domestic production of manganese anymore.You can't make steel without it and it turns out that China controls over 97% of the world's electrolytic manganese supply - and they are looking for more for themselves. Not a good situation for the US and other nations which need to rely on essentially one supplier.
RI: How did you manage to acquire all these key manganese properties and was there any or much competition to do so?
LR:Based on our research, in 2007 we determined that the Artillery Peak manganese properties in Mohave County, Arizona, which encompass historical open-pit and underground mines that produced manganese from1928 to 1955, were available for acquisition. So we purchased 90unpatented lode claims and also began assembling the patented claims in the area. Soon after that we started a 5000 meter diamond drilling program and continued to pick up more claims. By October 2008 we had completed the assembly of virtually all the manganese camp at Artillery Peak which now consists of 112 patented claims and 254 unpatented,covering 12 sq miles.
RI: So what work have you done there since you acquired the property?
LR:The drilling results on the small portion of the property we first tested showed significant manganese over thick intersections. Based on that drilling program we received our first 43-101 compliant estimate in June 2008 followed by a second 43-101 in April 2009. That one was based on the 2007/8 drilling, as well as prior drilling and surface and underground sampling from reports in the extensive data base compiled in 1983 by Jim Lake of Hazen Research, who completed development work on the production of electrolytic manganese metal using sulfurous acid leaching. The second 43-101 indicates a manganese resource in excess of100 million tonnes, with 1,068,307,976 lbs of indicated contained manganese and 9,661,091,721 lbs of inferred contained manganese.
RI: Based on that, where do you go from here?
LR:Obviously, the key to any successful mining operation is being able to produce metals at a profit over a long period of time. The key to being able to do it at Artillery Peak is a combination of a large resource which is mineable at a low cost as well as a method of recovering the metal at a low cost. The mining part will be a simple and low cost open pit operation followed by use of a hammer mill to break up the ore prior to vat leaching using sulfurous acid, which we would produce onsite from sulfur. A metallurgical lab called Kemetco reports a proof of concept on the sulfurous acid method of extraction. The report proves a process based on the early work of the U.S. Bureau of Mines over several decades, and further development work by James L. Lake, Vice President of Hazen Research at the time, as well as Kemetco Labs‘. The process work has been successful in producing Electrolytic Manganese Metal from the samples of Artillery Peak.
RI: Can you explain the process a little more?
LR:Once the material has been reduced to minus 25mm, it is turned into a slurry in stirred tanks where it is leached when sulfur dioxide gas is injected through the pulp. That produces the sulfurous acid solution and in less that 30 hours, over 90% of the manganese breaks down physically and goes into solution. The leached pulp is then settle dusing flocculents and we end up with a pregnant solution containing manganese sulphate and dithionate. This is then evaporated to make crystals which are calcined at (250°C) to eliminate the dithionate and recycle the sulfur dioxide gas back to the leaching stage. The manganese sulphate is then purified to remove traces of any base metals, such as calcium, before being fed into the electrolysis stage.We can actually produce some of our own electrical power by using the intense heat which is produced when sulphur is burned to produce sulfur dioxide. The waste heat can also be used to speed up the crystallization and filtration of the leached pulp.
RI: So what are the economics of your proposed operation?
LR:In August 2009 we received a NI43-101Preliminary Economic Assessment of the viability of exploiting the reported Artillery Peak resource. The positive conclusion of the report is that we should be able to produce electrolytic manganese metal at a calculated cash production cost of 44cents per lb. The mining and processing costs at 90% recovery and 2.5:1stripping ratio should come in at
.15 per pound and the costs of electrowinning are estimated at
.29 per pound. The total "all in"cost is calculated at 63 cents per lb with a total capital expenditure calculated at $90,000,000. That would be for a 3500 tonne per day operation which would yield around 50,000 tonnes of electrolytic manganese per year. In the process we would be the lowest cost producer in the world.
RI: 3500 TPD doesn't seem like that large an operation by most open pit standards these days.
LR:Bear in mind that the capital cost is only $90 million, and using a resource figure of only 21.24 million tonnes at 4.48% manganese, we have a mine life of 17 years. Using base case figures and a manganese price of US$1.10, we have a pay back period of only 1.73 years and an internal rate of return of 60%. Even if our operating costs were to be20% higher than projected, the payback period would only go to 2.04years and the IRR would still be 50%. If manganese sold 10% higher,under the base case cost scenario, payback would be in 1.45 years and the IRR would be 72%. So any way you look at it, at only 3500 TPD this should be a very profitable operation. Plus, we can always expand production if the demand is there.
RI: In summary, why should investors be considering American Manganese as an attractive investment at this time?
LR:We think that American Manganese presents a unique opportunity to participate in a company which could be the lowest cost producer of electrolytic manganese in the world and will be providing a valuable commodity to US markets which is not available domestically at this time. If we can produce 110,000,000 lbs of manganese per year and make just .47 per lb profit, we should have some very happy shareholders.
Milestones:
* Begin drilling 191 reverse circulation drill holes totaling an estimated 15,885 metres
* starting the end of February
* Increase the existing NI-43-101 resource at Artillery Peak by 50% to 100% from current levels and move current resources from indicated and inferred to measured and indicated
* Raise additional capital as needed to move on to a
* Feasibility Study
* Begin production in early to mid-2013
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