Plenty of activity has happened with American Manganese over the past few months, which gives us an opportunity to sit down with President & CEO Larry Reaugh to discuss some of the challenges and opportunities facing the company, as well as discover a more personal side to the man running the show.
Since the PFS, American Manganese’ share price is down to around $0.10. There has been talk on the investor forums critical of management and looking for change; how do you respond to that?
I don’t think there is a single mining company out there right now that can say they haven’t been affected by the unpredictability of the market this year. Junior miners, even major producers, have all seen an impact on their share prices over the last several months due to a number of important factors. Yes, our share price has declined; yes, the PFS study increased estimates of our capital expenditures due to inflation and lower resource grades. But it also confirmed that the Artillery Peak project is a viable operation, an operation that can still result in some of the lowest cost manganese production globally. I don’t believe that the current share price accurately reflects our operation and its potential, and I believe that there is plenty of room for growth.
As for management change, I have faith in this company, in our project and in the EMM market and the potential for growth. I would hope that most of our shareholders would also have faith in the management team currently in place; a team that has worked hard from the beginning, saw the opportunity with the Artillery Peak project and has strived to provide maximum shareholder value. I intend to see this project through for as long as I am the President and CEO of American Manganese.
In the months leading up to the PFS, you were quoted as saying there would be no ‘surprises’ in the PFS, but a $477 million cap ex is definitely a surprise. What happened?
We certainly were not expecting to see our capital expenditures rise to the level that they did. I included a statement in our presentations, starting as early as October, that I expected costs to go up due to lower grades of the resource and inflation. I also talked about higher costs in a lot of the videos that were produced. After further drilling at the Artillery Peak site we adjusted our grade level to 2.5%, and in order to remain at the production level we would like to achieve, we had to increase our production tonnage per day from 3,500 to 7,000. This of course increased the size of our operation, and with that increase in size came an increase in capital cost. Additional costs came from the liquid/solid separation circuit as well as the sodium sulphate recovery circuit; two crucial aspects to our EMM/EMD production.
Other cost increases came from the overall operations costs, which has been an endemic problem for all mining operations globally. The industry has seen an increase in all sorts of operating needs, including wages, materials, construction equipment, etc. We are not the only company faced with the challenge of rising capital costs. Last year BHP saw their costs rise to over $3 billion for the Warsley Alumina expansion, and that’s just one case of many that have run into similar situations. It will continue to be a challenge for the industry while the market remains as volatile and unpredictable as it has been. Overall, management was not prepared for the extent of the rising capital costs.
What shareholders really want to know is where does the company go from here? How does AMY regain shareholder confidence?
Our strategy hasn’t changed. We still believe we have a critical and strategic mining opportunity with Artillery Peak, and despite the fact that initial expenses have increased, our operation will still be able to produce electrolytic manganese metal at a price point well below the current, and future, EMM price levels. We will continue to move forward with the development of the Artillery Peak project, filing environmental permitting and building out or research into the production of ultra-high purity manganese dioxide, which we believe we’ll be uniquely positioned to produce, for use in lithium-ion batteries with Kemetco Research.
As for shareholder confidence, I think that our shareholders invested in our company because they saw the growth opportunity of Artillery Peak and the EMM market. That opportunity remains. An increase in capital expenditures doesn’t change the potential for a great future for this company. As far as we are concerned, the PFS validated the fact that this project is feasible, and we will continue to go ahead developing this project to production; it is up to the individual shareholder to decide whether they believe in the future of this project as well.
Although the PFS was not what we wanted, it is still positive and puts us on a greater footing in reality than the PEA, which was 3 years old and represented a documents based conceptual process which has now been verified by the PFS. This is evidenced by the renewed interest in the company represented by both the EMM and EMD markets. We’ve seen new opportunities open and continued discussions with interested parties as well as several planned visits to the property in the next few weeks.
You’re no stranger to the mining industry. Have you experienced difficulties like this with companies you’ve managed in the past, and if so, what was the final result?
The last time this happened to a company I founded was in 2006 when capital costs went much higher in the final positive feasibility study. At that time the stock doubled, as we were in a Bull market, as opposed to the 16 month Bear market we are in today.
You were recently invited to speak at the Strategic Metals Conference in Washington D.C. where there were a number of high level U.S. government officials. Can you tell us a bit about that?
Well, we were one of three companies asked to present regarding strategic metals, including rare Earths, about NEPA (National Environmental Policy Act) permitting process. There were a lot of high level government officials there to speak as well as to attend the conference.
I had the opportunity to talk about the critical and strategic nature of manganese as well as to add recommendations to the dialogue centering streamline the NEPA environmental permitting process which currently exists in the U.S. It was a great opportunity for the company, in that a lot of mining supporters on Capitol Hill were congregated in one place. I expect that AMY will continue to play a role in future discussions with the American Resources Policy Network.
What led you, a guy whose experience has been predominantly in gold and precious metals, to spearhead a company focused on manganese, a far less common metal?
I’ve worked with companies that I felt had the opportunity for growth, and that’s why I’m involved with American Manganese. While gold may be the most talked about metal, manganese is actually much more exciting than it seems. We’re talking about a metal that is listed as a critical metal, a metal that is going to play a big role in the development of clean technology and the steel industry and a metal that has been all but nonexistent in North American production.
To put the prospect of manganese in perspective, take for example lithium-ion batteries. Lithium-ion gets a lot of attention in the green energy market. Whether it’s for commercial power usage, the automotive market or industrial usage, lithium-ion remains a viable and exciting opportunity for the battery market. But lithium-ion should actually be called manganese-ion batteries; lithium is a very small percentage of the overall battery material, whereas manganese makes up over 60% of the batteries’ composition. This is a market with a huge potential for growth in the green energy sector, and that’s why I’m excited to be part of this industry.
In your 30+ years of experience in the mining industry, how have you seen the industry change, and where can you see the industry going?
Markets come and markets go, but I have never seen a commodities market like the one we have experienced in the past 8 years. Commodity prices remain robust even though they have been moving down over the past few weeks. Yet valuations that have been given to the resource stocks regardless of the metal (precious, base or specialty) or even in production are almost as bad as the crash of 2008. This valuation cannot continue as long as the BRIC countries continue with their industrial revolution(s), albeit at lower grade rates.