EXPLORATION 1998 — Magnesium Alloy active in Republic of Congo

Junior Magnesium Alloy (MGAC.U-C) has formed an ambitious plan to become a large, low-cost producer of magnesium metal through a multi-faceted project now at an embryonic stage in the Republic of Congo in equatorial Africa.

The Toronto-based company was formed last October by the amalgamation of private firm Congo Minerals (which was granted a key Congolese operating contract last May) with publicly traded shell company Clavos Enterprises.

Magnesium Alloy (MAC) is led by Chairman and President George Creber, Executive Vice-President William Burton and Vice-President Kim Barkan. All three are directors, as are Stephen Dattels and Patrick Mitchell.

In January, MAC began its unlisted trading (in U.S. dollars) with 13.8 million issued and outstanding shares (17.3 million fully diluted) plus US$3.36 million in cash and receivables.

That money was raised prior to the amalgamation, when MAC’s predecessor completed two private placements by issuing 1.24 million shares at US50cents each and 1.91 million units at US$1.25 each. Each unit consists of one share and half a share-purchase warrant, with one warrant entitling the holder to buy a share for US$1.50 over two years.

MAC owns a full interest in two adjoining exploration permits, totalling 480,000 ha, along the oil- and gas-rich Kouilou region on Congo’s Atlantic coast.

The permit area includes the major deep-water port of Pointe Noire, which connects by rail to the capital, Brazzaville.

The two exploration permits — named Youbi and Makola — contain extensive deposits of interlayered marine evaporites, including the two primary magnesium ore minerals of interest, carnallite and bischofite, plus other salts such as tachyhydrite, sylvite and halite.

Following the establishment of an office in Pointe Noire, MAC will commence a US$3-million prefeasibility study, scheduled for completion in 18 months.

The study will include a 2-to-3-hole, US$400,000 drilling program designed to obtain representative carnallite and bischofite samples for structural and assaying information, as well as mineralogical and leaching tests.

MAC describes the magnesium deposits as being among the largest and cleanest of their kind in the world, with an indicated resource estimated by the Congolese government at about 800 billion tonnes, based on 42,800 metres of drilling in 108 holes.

The most extensive deposits occur within the Makola permit (which contains the past-producing, underground Holle potash mine) along the border with Angola’s Cabinda province. There, some 12 evaporite cycles, averaging about 60 metres in thickness, have been identified over the entire licence area at depths ranging from 300 to 800 metres.

The exploration permits last for four years and are renewable twice for a 3-year period at each renewal. The permits entitle MAC to a mining permit for each deposit it defines for extraction.

MAC is proposing to exploit the deposits by solution mining the earlier cycles of carnallite beds, which reach thicknesses exceeding 12 metres.

Plans call for some of the richer bischofite beds to be mined as well.

The company says that solution mining is the most appropriate extraction method because of the high purity of the carnallite and the relatively undisturbed nature of the beds, as well as their depth below the water table.

In addition to magnesium production, the process will generate potash and chlorine as byproducts. The company is investigating the possibility of using the chlorine as the basis for a plastics business that would be coupled with local offshore oil and gas production.

Magnesium refining is a power-hungry process, and initial estimates are that MAC will require 350 MW of power for its magnesium processing and another 200 MW if a plastics resin plant is developed. MAC would also require 120 million cubic metres of natural gas annually.

While the project could make use of electricity generated at existing facilities within Congo and at Isangila Falls (formerly Livingstone Falls), in neighboring Democratic Republic of Congo, a third phase of hydroelectric development at the Sounda Gorge, near the Youbi permit, if undertaken, could provide the company with another power source.

MAC envisions spending US$500 million to US$1 billion to develop a magnesium mining and refining plant at Pointe Noire. Annual production capacity would be 50,000 tonnes of primary magnesium metal, a figure that could be ramped up to 100,000 tonnes annually.

Scott Waldie of First Delta Securities predicts that, at current market levels, MAC’s proposed production levels represent an annual gross revenue of US$120 million to US$240 million.

The company is boldly predicting that its production costs could range from US$1,400 to US$1,600 per tonne, which would make MAC the world’s lowest-cost magnesium producer.

MAC says it could further reduce magnesium production costs by using new electrolytic-cell technology being developed by its own research and development team, which plans to perform pilot tests for magnesium recovery from the project’s carnallite ore.

The company intends to supply a growing demand for magnesium-aluminum alloys, principally in the automobile industry, where magnesium metal has been supplanting aluminum because of its superior metallurgical qualities, as well as its increasing price-competitiveness with aluminum.

In late January, Congo’s new ruler, General Denis Sassou-Nguesso, and his ministers ratified MAC’s mineral exploration agreement, confirming the company’s rights at its two licences.

Sassou-Nguesso previously ruled Congo as a one-party state from 1979 until he was defeated in 1992’s multi-party elections by Pascal Lissouba. In October 1997, following several months of civil war, Sassou-Nguesso regained power by ousting Lissouba with the assistance of Angolan troops.