GULF Manganese Corporation’s proposal to construct a smelter to produce high carbon ferromanganese alloys has robust economics. A financial study shows the smelter, proposed to be constructed near Kupang in West Timor, could return EBITDA of US$623.8 million over 20 years.

Gulf Manganese, formerly Gulf Minerals, says development of the smelting and sales marketing business will be carried out through its Indonesian-based subsidiary, PT Gulf Mangan Grup.

Analysis of the study shows the project has an estimated Net Present Value of US$201.4 million, using an 8% discount factor. As described in the study, Gulf will develop a fully integrated manganese business that provides the following value propositions:

  • Sound project economics;
  • Operating costs at 80% industry average cost;
  • Highest quality ore supply (+50% manganese);
  • Producing a premium manganese alloy (78% manganese);
  • Established port and infrastructure;
  • Government full support, fiscal incentives of 10 year tax holiday;
  • Board/management depth of manganese and Indonesian experience;
  • Global sales network;
  • Modest capital requirement;
  • Early cash flow from exporting ore;
  • Proposed Singapore listing; and
  • Robust dividend policy with distribution of 50% of profits.

The company plans to build eight furnaces over four years producing a premium quality, 78% ferromanganese alloy resulting from the unique qualities of Indonesian high-grade, low impurities manganese ore. It requires modest start-up capital investment of US$67.5 million staged over 4 years, plus working capital, and provides estimated returns supporting an internal rate of return of 45.6%.

High grade manganese ore will be purchased locally from Timor and blended with medium grade high iron manganese ores sourced from Africa. In the first year, ores will be purchased and treated via a jigging process to produce lump manganese ore. This will be exported to provide early cash flow whilst the first smelter is being built.

To optimize the smelting process high grade ore will be purchased locally from artisanal miners and others in Timor. Manganese ores in Timor are typically high grade, approximately +50%, and make ideal smelter feed.

Gulf has entered into an agreement to secure 50 hectares of land with landowners and the local Regent for development of the proposed smelter. The site is close to the port of Tenau which will minimize consumable import costs and export logistics costs, as well as being close to the coast permitting use of sea water for power station cooling systems.

Gulf has engaged Australian engineering group, Como Engineers, to oversee the engineering and project management of the proposed smelters.

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