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    Hi Folks

    Just a little bit of information for those either interested in Magnesium as a future potential investment, or indeed for those who may be following this company.

    Feature Story

    Date : April 9, 2003

    The Offtake Agreement With ThyssenKrupp Is Key To Future For Magnesium International.

    The best stories are the simplest stories. For a long time Minews has had a somewhat muddled view of Magnesium International, the magnesium hopeful which used to be called Pima Mining. Maybe it was because the company was assembling all the parts which make up the jigsaw of a mining project – the deposit itself and its size and grade, title to it, any native and environmental problems , political support, site location, recovery technology, power contracts, funding, bankable feasibility etc – the list is endless and it takes a very long time. There is bound to be the odd setback and the difficult thing for the directors of such a company is to maintain onward momentum for the shares while the jigsaw is assembled.

    In the case of Magnesium International it also had to contend with local shinanigans in the shape of the competition from AMC, another Australian magnesium hopeful, and the questions that were asked by investors when Noranda took a deep breath and mothballed its $500 million Magnola magnesium project in Canada recently. As Our Man in Oz suggested at the time this could have been seen as good news for the Aussies as it was another competitor out of the way. The Canadians, however, blamed falling world magnesium prices and cheap Chinese exports which effectively put everyone in the same boat as few people picked up on the fact that magnesium is a two tier market.

    Chinese magnesium is low quality and it has markets of its own such as low sulphide steel producers. Over the past ten years it has failed to get a single contract with an automotive manufacturer as the magnesium is not sufficiently pure to be used by die casters. Unfortunately Magnola failed to produce at the standard for which it was designed and fell into this lower category. Not only that, but it also operated at 42per cent of its 58,000 tonne-a-year capacity, producing metal at an average cost of US$1.60 a pound, double its feasibility forecast of US$0.80c a pound. The metal it produced was of poor quality so it was in head to head battle with the Chinese and that is a position no company can afford.

    This again cast a shadow over the magnesium industry on the basis that no one seemed to be able to get it right. AMC had failed to raise the funds it wanted and Noranda could not get a plant to work properly. Bad luck on them, but why should this be allowed to obscure the potential of Magnesium International which already had the key to a successful project in its pocket. This key is the offtake agreement with ThyssenKrupp the second largest European metals trader and the third largest European auto part maker. And this agreement encompasses all the production from the SAMAG project over ten years from when production starts and it is then extendable for another five years if both parties agree.

    Light dawned for Minews after talking to Peter Koken following a presentation Magnesium International gave today in London. He is a very big cheese at ThyssenKrupp Metallurgie – Mitgleid der Geschaftsfuhrung to be exact – and he made the point that it was his company which decided that it had to diversify away from its dependence on steel a few years ago. Magnesium was pinpointed as an ideal enrichment to its metals portfolio and Mr Koken went out looking for an ideal project. It had to be on its way to produce top quality magnesium; it had to be using proven technology; and ThyssenKrupp was interested in an all or nothing deal. Magnesium International had acquired the proven Dow Technology; it was going to produce top quality magnesium; and it had not come to any offtake agreement with another party at the time. Bingo.

    This is where Magnesium International parts company with its rivals and with any other problems that may, or may not beset the magnesium industry. ThyssenKrupp has no shares in the company and does not appear to envisage buying any, though it could buy the whole company if it wanted . Credit is given to its management for getting the project to its present position and the German company will help it with the equity funding on which it has to embark as well as lining up banks for the development finance. Utter confidence is expressed for future demand for high quality magnesium and what ThyseeenKrupp does not use itself it will market elsewhere.

    Vehicle weight is seen by Peter Koken as giving the push to magnesium demand and he gives two simple examples. Americans like driving trucks as it gives the ol’ country boy image. In a way it is like Londoners driving around in Jeeps and Range Rovers. These ‘Sports Utility Vehicles’, as they are known in the States, get steadily bigger and heavier and attract more tax above a certain weight. No one wants to reduce their size so it is the weight that has to go and magnesium is the answer. Similarly with commercial tippers. The struts and other parts used in tipping are heavy steel and this reduces the load that can be carried. Substitute magnesium and the problem is solved. Just two examples, but they demonstrate ThyssenKrupp’s thinking and the reason why it is determined that Magnesium International’s SAMAG project will get into production.

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