Study Confirms MAC's Potential as Low-operating-cost Magnesium Producer
1 June 1999
Magnesium Alloy Corporation -- Feasibility Study Confirms MAC's Potential as Low-operating-cost Magnesium Producer
TORONTO--June 1, 1999--Magnesium Alloy Corporation ("MAC" or "the Company") (CDN:MGAC) is pleased to announce the results of an independent feasibility study (the 'Study') for the Company's Kouilou magnesium project in Congo (Brazzaville).The Study was prepared by Salzgitter Anlagenbau GmbH ("SAB") recently, a division of Preussag AG of Germany and soon to be part of Babcock Borsig AG. The Study has been upgraded by SAB to "full" feasibility status from pre-feasibility. Also, SNC-Lavalin Inc. has produced a pre-feasibility study of the Kouilou hydroelectric site. The results of these two studies indicate that the Kouilou project could be the world's lowest cost producer of primary magnesium metal and magnesium alloys.
The Kouilou magnesium project proposes the solution mining of extensive magnesium salt deposits and the subsequent extraction of magnesium metal utilizing proven technologies and the abundant energy resources of the area. The SNC-Lavalin report for the Kouilou hydroelectric site indicates an electricity rate of US$0.016 per kilowatt hour (kWh) with the potential to lower the rate to US$0.010/kWh. SNC-Lavalin is a Canadian based world-leader in hydroelectric engineering and civil construction.
In addition to the project's needs of 120 megawatts, the hydroelectric development would help meet the Congo's energy demands. The local petroleum industry also has significant power requirements and could enter into off-take agreements for an additional 50 megawatts that could be supplied to the local power grid by the hydroelectric development.
The results of the Study indicate a cash operating cost of US$0.55 per pound of magnesium. This price assumes electrical rates of US$0.016/kWh. Further significant cost reductions could be achieved by taking into account potential by-product sales of salt and potash. Management of MAC believes that operating costs below US$0.50 per pound magnesium are achievable utilizing the sale of these by-products. Current long-term contracts for magnesium range from US$1.30 to US$1.60 per pound. Salzgitter has offered to complete the entire project with consortia partners on a "turnkey basis" due to their confidence in the mining and process technology. As well, Salzgitter will provide full process guarantees and ensure the implementation of an operating team.
The extensive magnesium salt resources were outlined by earlier exploration programs for potash and oil. The magnesium salts underlay the majority of the Company's 4,800 square kilometer license in the Kouilou area. The project is based on an annual production rate of 60,000 tons of magnesium alloys, with an estimated capital cost for the plant of US$514 million. The plant will be located in the industrial port city of Pointe Noire, Republic of Congo. Neighboring, oil-industry facilities are owned by Shell, ELF Aquitaine, AGIP, CMS Nomeco and Chevron.
The solution mining technology is being provided by Kavernen Bau-und Betriebs GmbH, a division of Preussag, of Germany where it has been commercialized for fifteen years under very similar geological conditions. The magnesium extraction technology has been confirmed by VAMI (Russian National Aluminum and Magnesium Institute) and UTI (Ukrainian Titanium Institute). This proven technology has been successfully applied to identical source materials for decades.
The Company is now beginning the Project Implementation Phase. This phase includes the last detailed work necessary to start construction, including detailed engineering work, environmental impact study and the drilling of solution mining production wells.
Demand for magnesium has been growing rapidly in recent years, especially in the automotive driven die casting sector, where annualized growth rates are forecast to remain above 16% per annum. The major auto manufacturers have recently indicated that they intend to increase magnesium content in cars from the current 5 pounds to 250 pounds per car over the next 20 years. To meet this demand and to assist in the continued growth of the magnesium industry MAC plans to be a cost competitive leader. Magnesium Alloy Corporation is currently in discussions with major auto manufacturers for long-term, off-take agreements. Amalgamet Canada, also part of the Pressuag Group, has been retained by the Company as marketing agents, to assist in these efforts.
Magnesium Alloy Corporation is a Canadian company, whose shares are quoted on the Canadian Dealing Network Inc. (CDN), in Toronto and is traded in U.S. currency under the symbol "MGAC.U." MAC has 18,568,595 shares outstanding on an undiluted basis. More information on the project is available on our web site www.magnesiumalloy.ca.
On Behalf of the Board of Directors
William B. Burton President and Chief Executive Officer