A Significant Opportunity in Manganese
Cancana’s Brazil Manganese Corporation project (BMC) in the the northern state of Rondonia in Brazil is uniquely positioned to capitalize on Brazil’s emergence as the world’s new breadbasket. The BMC project is poised to meet a growing domestic and global demand in high-grade, high-purity manganese for agricultural uses.
Agricultural grade manganese demand in Brazil alone is forecast to grow at a compound annual growth rate of nearly 5% for the next decade:
Last year Brazil imported 50,000 tonnes of manganese ore & concentrates from South Africa. Cancana is ideally positioned to fulfill this demand domestically given the BMC project’s ideal strategic location in the region adjacent to Brazil’s largest agricultural region (Mato Grasso). Moreover, BMC’s manganese production grade sets it apart from the major global manganese producers (Australia, South Africa, etc.):
BMC’s high-grade, high-purity manganese commands a ~30% premium to the spot manganese ore price. This strong demand and premium pricing allows Cancana-BMC additional negotiating power in terms of transportation of its ore to customers and enrolling customers into committing to long-term contracts. Moreover, the premium manganese market demand is relatively inelastic and sheltered from the ups and downs of Chinese iron ore demand.
To give some idea as to the size of the opportunity which lies ahead for Cancana-BMC, there is significant potential for 500,000-1,000,000 tonnes per year of premium manganese production. At current prices of ~$200/tonne the BMC project would generate between $100 million and $200 million per year in revenue over a projected double-digit mine life. Given that a comparable project (albeit lower grade of manganese ore), the Woodie Woodie project in Australia, generates cash margins of over 35% on the sale of its manganese production it’s not hard to see that Cancana shares’ current C$20 million valuation offers considerable potential for upside for the company’s 1/3 stake in the BMC project.
Here is a rough valuation analysis of various annual production assumptions using a 5% discount rate and a $1.30 USD/CAD exchange rate:
If the BMC project is able to achieve a double-digit mine life with 500,000 tonnes per year of high-grade/high-purity manganese ore production it will not be a stretch to see Cancana shares rise to 4-5x current levels. The world’s appetite is growing and Brazil is at the forefront of meeting the rising demand for agricultural commodities. Cancana/BMC is ready to play an integral part in supporting Brazil’s ascension as the world’s new breadbasket.