China Magnesium Corporation capital injection set to galvanise magnesium JV in China
The demand for magnesium in China is increasing as a lightweight substitute for aluminium, and China Magnesium Corporation (ASX: CMC) has the potential to fill this void with a goal of 105,000 tonnes of annual magnesium production from the Pingyao Magnesium Project.
China Magnesium has taken another step towards this by injecting A$5.4 million (CNY35.7 million) into the Chinese joint venture company Shanxi Luyuan Magnesium Company (CMC China), which was approved by the Shanxi Administration for Industry and Commerce.
A strengthening Australian dollar has actually meant a reduction in planned contributions by CMC into the joint venture.
China Magnesium has therefore increased its interest to 90.7% in the Pingyao Magnesium Project.
The company said it already has a license to substantially increase output to the 105,000 tonne annual production goal by 2013, and has a nearby source of magnesium ore in dolomite.
Demand in China for magnesium continues to increase as it can be used as a substitute for aluminium in many applications such as light weight vehicles and mobile electronic devices.
CMC believes magnesium's light weight is important in minimising (lithium battery) power consumption for electric cars, and is generally used in the automotive, computer and consumer electronic markets, where China has a strong and growing manufacturing industry.
Roskill Consulting has forecast around 6% annual growth in magnesium consumption, and around 8% in the magnesium alloy market.
Magnesium, which is not a centrally traded commodity, recently traded at US$1.41 a pound, a 14% increase since January 2010.
Of major importance for the joint venture, the Pingyao Magnesium Project is strategically located about 1000 kilometres from Beijing in the Shanxi Province, with production forecast to be relatively cheap for the company.
Production costs will be lower than in western countries due to the abundance of cheap coal nearby, low cost ferrosilicon as the main suppliers are located in Inner Mongolia and Ningxia Provinces, combined with the generally low labour costs.
This latest payment does not alter China Magnesium's consolidated cash position as CMC China is a subsidiary entity.
CMC China will apply the latest capital contribution towards the upgrade and first phase expansion of the existing magnesium plant to 20,000 tonnes annually as outlined in the company's IPO.
China Magnesium was admitted to the ASX in November 2010.
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