American Manganese Inc.
Larry Reaugh, President & CEO
American Manganese Inc. is a diversified exploration and development company focusing its attention on mineral properties and commodities used in the steel manufacturing industry.
WSR: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Reporter and joining us today is Larry Reaugh, the CEO of American Manganese Incorporated. The company trades on the TSX Venture and their ticker symbol is AMY. They are a diversified exploration and development company focusing its attention on mineral properties and commodities, which are used in the steel manufacturing industry. Thanks for joining us today, Larry.
Larry Reaugh: I’m glad to be here.
WSR: Can you talk about the commencement of drilling on the Artillery Peak Manganese Project?
Larry Reaugh: We started earlier this week a drill program of tailing 191 reverse circulation drill holes on our Artillery Peak Manganese Project. We’ve done previous drilling, there was drilling done back in the ’50s. It’s a past producing area and we do have a NI 43-101 resource of over a billion pounds in the indicated category and 9.6 billion pounds in the inferred. It also has a 43-101 economic evaluation that would bring us around to being the lowest cost producer in the world of electrolytic manganese.
WSR: You improved and you’re going to expand as a result of your existing NI 43-101.
Larry Reaugh: That’s right. We’re planning to bring the resources into the measured indicated and add more in the inferred. So, this 191 drill hole program is really the beginning of a long drill program on that property.
WSR: Give us an update on the Lonnie/Virgil, that’s a Niobium play, right in British Columbia.
Larry Reaugh: Yes, that’s the Niobium and Rare Earth play that we have here. It certainly doesn’t have the focus on it at this time as the manganese does. As we know rare earths are in demand, but people have to realize that manganese is even more critical than rare earth at this time, especially in North America and I’ll touch on that a little bit later. The Lonnie/Virgil, we did do a five-hole drill program. We are planning to drill a that has Niobium and Rare Earth with it, but a new one was found to the north and that was drilled instead, but it turned out it had no mineralization on it. The property is certainly not ordained by this, but it’s still got the resources and mineralization impact on it, but we’ll have to go back in some time this year and drill those holes on the Lonnie and maybe the Virgil.
WSR: Talking about manganese, talk about some of the market trends and how well positioned the company is to capitalize on them.
Larry Reaugh: There are a few very important things about manganese. First off, there is different types of manganese; there’s traditional manganese, there’s manganese ore which runs from about 30% to 55% and that’s mined and shipped as an ore so you get the gang with it and shipped directly to the smelters or to the end user and they treat it at that end, they get about $0.11 or $0.12 a pound for it. Once it’s converted metallurgically and by furnace into ferro or silicon manganese, then the price for ferro averages about $0.90 a pound and silicon is around $0.55. Now, the manganese that we are developing or the project that we are developing in Arizona is electrolytic manganese, the fastest growing segment of manganese. The whole manganese industry has grown up from 2008 at 8% a year to about 30 billion pounds and the electrolytic manganese has grown for the five years prior to 2008 at 26% to 2.6 billion pounds. Now, interestingly China controls that market, they have 97.5% of all the electrolytic manganese in the world. Let’s face it, without electrolytic manganese we can’t make metals like stainless steel or some of the pipelining that we need for the nuclear plants, for saline plants, refineries; it goes on and on and on because you have to use pure manganese. Electrolytic manganese is really a pure manganese at 99%, we use that pure manganese to upgrade the specialty steels and it’s also largely used in the aluminum industry so it’s a critical metal. Unfortunately, there is no manganese whatsoever mined in North America, that’s Canada or the US. So, being a critical metal, you can’t make steel without manganese and if you can’t make steel, the world stops. We think we are just in the high of a storm here of being discovered and we’re feeling very good about what we’re doing.
WSR: Anything else that you feel makes American Manganese unique from some of the other players in your sector?
Larry Reaugh: There are other players in the sector. The ones I know off in North America have manganese as a by-product, we’re a pure manganese play. There are juniors in the manganese field in Australia, all of them looking for manganese ore. So, what makes us unique is that we are the only one doing something that’s a primary project in the US. We know that high grade costs of South Africa of the small amount of electrolytic manganese they make to the free world is around $1 and China is around $0.92 on their low grade deposit and our economics are telling us that we can do this at $0.44 a pound. So, that makes us unique as the lowest cost producer in the world, I mean in an area, where you’ve got sole production of it in North America and it is the most critical metal above all metals that includes Rare Earth. According to the National Council in the US it’s the most critical metal. So, we’re in a great spot.
WSR: Do you foresee any challenges ahead and if so, what are some of your specific strategies for overcoming them?
Larry Reaugh: The challenges that we have are pretty much — I don’t think marketing or doing offtake agreements, it’s going to be any challenge as we don’t have any production in the US and you have to remember now that electrolytic manganese has 14% import duty on it. Manganese electrolytic trades at $1.31 in the world and in the US, it’s priced at about $1.60. So, we have a competitive advantage there. So, in the marketing end of it, there is no real challenges that I feel is going to be a slam-dunk to actually offload the product. But you are going to go through the same channels and challenges you go through for your gold projects or copper projects with the permitting and getting the feasibilities done, it’s all time consuming, but I don’t see any real roadblocks up there for us.
WSR: You recently hired Michael MacLeod as a new CEO to oversee the manganese project development. Perhaps you can walk us through your background experience as well as that of some of the key management team.
Larry Reaugh: I’ve been in the mining business for 47 years and the last 30 of it has been in public companies. We’ve had a lot of projects and have been very successful in taking discoveries, three of our discoveries have gone into production; one under ourselves, the other two under different companies. We have purchased projects that eventually were resold and have gone into production and they number about three or four. We have the ability and experience to identify good projects. Our biggest project was Adanac Molybdenum. We moved that in 2004 through 2008 through every step that was required to get the permit from the BC government, the environmental permit, and we did that. Mike was my CEO/COO through most of that and then I put him in as CEO. So, we both have very good experience on moving projects from exploration and development into the production area. Mike is a mining engineer and he has worked on this with various companies over the last 25 years; mine operating, mine building, mine expansion. So, that type of work really qualifies what he is doing now.
WSR: What are some of the milestones and objectives that the team hopes to accomplish here over the course of the next 12 months?
Larry Reaugh: We plan to keep the drills going there until we’ve drilled out specific ores because I think it’s almost 11 billion pounds that we have now and that can be proven out over the next year-and-a-half. At the same time, we are going to start our pre-feasibility work and go directly into our feasibility work as well as our baseline work and then into the environmental study work. We don’t plan on stopping now. Certainly, we are not financed to do that at the moment, but there are financial offers out there to finance the company. We feel we are fully capable of staying on the ground until this thing reaches the point of construction and the timeline is saying that we should be in construction by late 2012, in production in early 2013. So, our goal is to get this into production in 2013.
WSR: You recently hired a new IR firm and you were formerly Rocher Deboule as of January. Do you think that right now investors are beginning to understand the American Manganese story and the company’s upside potential?
Larry Reaugh: It’s interesting that I was the first one out there with the story on molybdenum back in 2004, the only company. So, we had to go through a learning curve with the public that took a couple of years, but by the end of that first year, there were about four or five companies that were also in the molybdenum sector. There’s got to be 700 or 800. Here we started this manganese project assembling all those properties back in 2007/2008 and now the public is just beginning to learn about manganese, but believe me it is happening out there because manganese is the fourth largest graded metal commodity out there behind iron, aluminum, and copper. People don’t realize that the price during the run-up in 2007 was as high as $2.50 a pound, currently $1.30 a pound. Our stock is $0.44 a pound so if you do the math on that, you can see that it’s a very robust project. Yes, I think the time has come, we’re a very attractive investment target based on if you watch the performance of the stock in the last week-and-a-half, it’s doubled and I expect to see more of investors ploughing into it.
WSR: What’s the one thing that you wish investors better understood about the company, which if they knew would result in higher stock valuation?
Larry Reaugh: If they want to make a comparison, the Rare Earth market was another market that was lingering, had four or five companies in it for a number of years and they weren’t really getting any attention until China came along, which controls 91% of the rare earths, and said that they were thinking of reducing the exports and all of a sudden that threw the world into a panic as Rare Earths are used heavily in the hybrid battery industry. This put every one of our computerized abilities, whether it’s our laptop or microwaves or whatever, it’s got some rare earth involved and certainly China controlling 91% and talk about cutting off production spurred the gold rush into rare earths and those stocks went to $2 million market cap, but there is billions of market caps out there and they’re rare earths now. The same thing is going to happen in manganese. China is running out of resources internally to reduce the manganese ore from which they make manganese ferro and silicon and electrolytic. They control 97.5% of the electrolytic. I can see either one of two things happen. They reduce the exports in the next two years or they raise the export duty to the point where it’s just better to sell them within their own country and that’s the thing. I think manganese is going to hit the radar screen and at the end of this year, you will see 15 or 20 companies that are going to be involved with manganese; by the end of next year, you will see 200 companies. We have got the largest known low-grade deposit manganese in the Southwestern United States, we were the first and we were able to tie that up.
WSR: Once again, joining us today is Larry Reaugh, CEO and President of American Manganese Incorporated, which trades on the TSX Venture under the ticker symbol AMY and are currently trading at $0.40 a share. Before we conclude, why do you believe that AMY, why does American Manganese represent a good long-term investment opportunity for potential investors?
Larry Reaugh: If you go to our site, americanmanganeseinc.com, you will find there is 43-101 preliminary economic evaluation on there and in that evaluation, we are talking of producing about 110 million pounds of manganese per year at the cost of $0.44 a pound for 17 years. If you look a little deeper, you will see that only represents 20% of our actual resources. So, the reality is we have about 100-year mine life there and by the time we finish these drill programs, we could increase the size by five times and probably still have 50-year mine life in the manganese area and would make us a very major producer of it. That’s the eventual goal, start small and then expand it out. I think it’s just a terrific opportunity for investors out there right now.
WSR: We certainly do look forward to continuing to track the company’s growth as well as report on your upcoming progress and I like to thank you for taking the time to update our investors, Larry. As I mentioned before, it’s always good to have you on.
Larry Reaugh: Okay, I appreciate it.