Manganese a quiet achiever in the iron boom, but the noise is about to start

Manganese producers

THE demand and price surge for iron ore in response to the annual global production of steel climbing to more than 1 billion tonnes for the first time is well understood.

Not so well understood is that it takes more than iron ore to make steel and that in many cases, the demand and price performance of the metals that give the full range of steel products their special properties has been as good, if not better.

Manganese is a case in point. It has gone ballistic thanks to increasingly tight supply/demand fundamentals, with power shortages in South Africa being the latest scare for steel makers who, on average, consume about 6 kilograms of the stuff for each tonne of carbon steel they produce.

Compared with the iron ore market, the seaborne trade in manganese is tiny – about 16 million tonnes a year – but mining the stuff can be hugely profitable.

BHP Billiton supplies about 15% of the world's total supply and in the December half-year, booked an underlying earnings before interest and tax result from the business of $US431 million.

Australia has two other producers – Consolidated Minerals and OM Holdings.

Ukrainian billionaire Gennadiy Bogolyubov saw what was coming and outbid everyone for ownership of ConsMin earlier this year. He ended up paying $1.3 billion – more than double the opening $625 million bid from Brian Gilbertson's equity house Pallinghurst.

Bogolyubov got a bargain. Since the takeover, contract prices secured by BHP for manganese ore have rocketed from $US2.70 a metric tonne unit in 2007 to a heady $US11.20/mtu. That is why OM's market capitalisation has grown hand over fist to more than $600 million.

All that is very interesting, but the manganese boom is still not a headline grabber. Garimpeiro's tip is that it won't be quiet for much longer, with punters set to turn their attention to the clutch of manganese explorers that offer leveraged exposure to the boom.