FitzGerald: South32’s manganese ‘mishap’? More ‘like Saudi Arabia going offline for a year’

ASX-listed manganese stocks are up and about. And that’s because a very ill wind blew a lot of good for the metal’s price, reports Barry FitzGerald.

Photo of palm trees blowing in the wind for 2016 Cairns Region Storm and Cyclone Guide. Source: iStock.

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

---

The ASX-listed manganese stocks are up and about, thanks to Cyclone Megan’s arrival at Groote Eylandt on March 16/17.

As is usually said when cyclones come through, it left a trail of destruction. Not that us southerners heard much about the mayhem.

But South32 (ASX:S32) certainly did because Megan slammed an ore carrier into the export wharf for its GEMCO manganese mine on Groote, a 60:40 joint venture with the somewhat distracted Anglo American.

For a while there, South32 gave the impression there was not too much to worry about.

But eventually it ‘fessed that yep, the hit on the manganese operation was severe.

---

For the latest mining news, sign up here for free Stockhead daily newsletters

---

So much so that it doesn’t expect the operation to get back to full production until the March quarter next year.

That’s no big deal for a company of South32’s scale and diversity.

Same goes for Anglo American.

But it is a big deal for the global manganese market, as Groote is the world’s second-biggest producer, accounting for about 12 per cent of the market.

In oil equivalent terms, it would be like Saudi Arabia going offline for a year.

Needless to say, manganese prices have taken off.

The average spot price rose 29 per cent month-on-month in April to $US3.92/dmtu for 37 per cent material ex-South Africa (Groote is 44 per cent and is priced accordingly).

It has gone higher since to be $US5.38/dmtu this week and no one is too sure where it will pull up, given the size of the hole punched in to the supply side of things by Megan.

For the other manganese producers the price hike is a welcome reprieve from the six-year lows witnessed last year when China was not in a buying mood and preferred to draw down on stocks.

---

MORE FROM STOCKHEAD: Tesoro Gold has hot Chilean prospect | Why Anglo’s red metal assets matter | Contrarians eye nickel

---

The recent share price performance of ASX-listed producer Jupiter Mines (ASX:JMS) – the world’s biggest pure manganese play – reflects the benefits of Megan’s black swan qualities.

It was 17c or so before Megan hit Groote.

By Tuesday morning, it had marched to 37c for a market cap of about $646 million on the strength of its near half share in the Tshipi mine in South Africa’s remote Kalahari manganese province (South32 is involved in a mine next door).

Cyclone Megan made a mess of the port at Groote Eylandt. Did wonders for some manganese stocks, though. Picture: supplied

Tshipi is the world’s fourth biggest manganese mine. It is a low cost producer ($US2-$US2.20/dmtu), with Jupiter’s share of earnings highly leveraged to the manganese price.

Jupiter pointed out recently that a $US1 increase over 12 months in the price of manganese is worth an additional $A146 million in earnings. Because it is a consistent dividend payer, higher prices also equals higher dividends.

Another to benefit is the ASX-listed integrated manganese producer out of Malaysia, OM Holdings (ASX:OMH), which has a 13 per cent effective interest in Tshipi. It shares have come up from 40c to 56c (on Tuesday morning) in response to the Groote situation.

---

Visit Stockhead, where ASX small caps are big deals

---

By now, followers of Garimpeiro will have sussed he isn’t normally focusing on companies of profitable/dividend paying status like Jupiter.

So what about the juniors in the manganese space?

They don’t have a bottom line as such to benefit from the rise in manganese prices.

But judging by the share price gains in recent weeks by more than a few of them, the Groote incident has been good for investor interest in the sector.

It is a feature of the manganese juniors that rather than focusing of producing manganese ore for steel makers in China, they are pursuing “new energy’’ opportunities, or the battery metals market if your prefer (Tshipi is doing the same, as is South32 at an undeveloped project in Arizona).

According to Jupiter, high-growth demand for battery grade manganese is expected to outpace growth in supply in the second half of this decade, leading to a market deficit.

Garimpeiro likes the sound of that.

So check out the likes of Firebird (ASX:FRB), Element 25 (ASX:E25), Euro Manganese (ASX:EMN), Black Canyon (ASX:BCA), Accelerate (ASX:AX8) and Bryah (ASX:BYH).

This content first appeared on stockhead.com.au

The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

SUBSCRIBE

Get the latest Stockhead news delivered free to your inbox. Click here