Under an amended contract with Metal Exchange Corporation (MEC), Latrobe Magnesium Ltd (ASX:LMG) will now provide all magnesium from its 1,000 tonnes per annum demonstration plant and its subsequent 10,000 tonnes commercial plant for markets in North, Central and South America and the Caribbean.
Further to this, MEC’s offtake of magnesium will increase by 20% from both of Latrobe’s plants, a move the company estimates will increase revenue of its demonstration plant by $1 million.
The amendment could work in LMG’s favour to the estimated tune of an incremental A$10 million in sales revenue. This in turn should increase EBITDA for the 10,000 tonnes per annum plant to in excess of $50 million.
LMG redirects supply to US
LMG plans to redirect an additional 200 tonnes per annum from its demonstration plant and 2,000 tonnes from its commercial plant to the US market.
This strategic move is in response to higher market pricing for magnesium in the US, exacerbated by that country's anti-dumping duty on imports from China.
As a result, LMG projects added revenues of A$1 million and A$10 million from its demonstration and commercial plants, respectively.
The initial terms of the agreement with MEC, including a rolling annual renewal and a minimum purchase price for magnesium, remain unchanged. Delays have led to a revised operational start date for LMG's demonstration plant, subsequently pushing the 10,000+ tonnes per annum plant's delivery to December 2025.
Previously allocated to Japan, the additional volumes of 200 tonnes and 2,000 tonnes have been secured by MEC. Japan's market will now be served after the launch of LMG’s 100,000 tonnes per annum stage 3 project in Sarawak, Malaysia.
Magnesium demand
Founded in 1974, MEC operates six manufacturing facilities in the US and employs more than 900 people. More than 160,000 tonnes per annum of magnesium are consumed in North and Central America, a figure set to rise owing to the material's expanding role in the automotive sector.
Due to sparse domestic production, the majority of magnesium used in the US is imported, intensifying the search for alternate suppliers following restrictions on Chinese exports.
In accordance with the US-Australia Free Trade Agreement, magnesium produced in Australia faces no import duties when entering the US market.