Tuesday, 8 September 2020

The Tesla-Manganese X Connection

I have been buying shares in Manganese X Energy (MN.V) (MNXXF) recently on hype of Tesla's upcoming battery day on September 22. I am making an educated guess that there will be some kind of connection either then or in the near future. I am certainly not the only one who has been making this kind of connection. The stock price sits over $0.20 on the Venture, up significantly since announcing and recently completing a financing at $0.08. The fact that people are willing to pay more than double the price of the financing on the open market shows the high speculative factor leading into the battery day coming up in two weeks. 

As electric vehicle companies move away from expensive cobalt as an input to their battery, nickel is seen as the prime victor in an NMC (nickel-manganese-cobalt) battery.  Cobalt is over $30,000 per tonne and nickel ranges between one-third and one-half of that price. But the third component of that trio - manganese - is priced at less than one-tenth of cobalt. If the prime motivation of EV car producers like Tesla is to get the cost of the batteries down in order to make more affordable vehicles, manganese is the way to get there. I'm not an engineer so battery development is not my area of expertise. Luckily, Battery University does a good job in explaining the chemistry in layman's terms: 

The secret of NMC lies in combining nickel and manganese. An analogy of this is table salt in which the main ingredients, sodium and chloride, are toxic on their own but mixing them serves as seasoning salt and food preserver. Nickel is known for its high specific energy but poor stability; manganese has the benefit of forming a spinel structure to achieve low internal resistance but offers a low specific energy. Combining the metals enhances each other strengths.
Reading this simplified analogy leads me to believe that any increase in nickel MUST be accompanied by an increase in manganese.

While manganese is cheap globally, production in the United States and Canada is non-existent. Supply comes out of China and South Africa, but if EV players -  including Tesla - want some kind of North American supply, they are currently out of luck as there are no producing mines. That's where MN comes in with its Battery Hill Project in New Brunswick. This property is one of the very few handful of North American (excluding Mexico) sources of manganese. There is a neighbouring property called the Woodstock Project that its past owners have had trouble getting off the ground. After multiple restructurings, it's currently in the hands of Canadian Manganese, a private company looking to list on the CSE. American Manganese (AMY.V) also has a prospective property in Arizona. If you type in "Tesla manganese" into Google, AMY has a thought monopoly on the whole "it's a Tesla buyout target" speculation.

Aside from the fact that any potentially feasible manganese mine in North America will attract the attention of EV players, MN has a Tesla connection that the other companies don't. And that connection is a man named Jeff Dahn. Dahn is the head of battery research in Canada for Tesla, working out of Dalhousie University in Nova Scotia. Any major financial news outlet covering Telsa's battery day story has mentioned Dahn and his research. Some examples from Forbes, CNBC and Reuters:  

https://www.forbes.com/sites/jamesmorris/2020/07/11/teslas-shift-to-cobalt-free-batteries-is-its-most-important-move-yet/#3e160b4b46b4

https://www.cnbc.com/2020/06/30/tesla-and-the-science-of-low-cost-next-gen-ev-million-mile-battery.html

https://www.reuters.com/article/us-autos-tesla-batteries-exclusive/exclusive-teslas-secret-batteries-aim-to-rework-the-math-for-electric-cars-and-the-grid-idUSKBN22Q1WC

Battery researchers know that there is a demand to shift away from cobalt and towards cheaper manganese. However, as this article in the journal Nature states, manganese has been held responsible for severe capacity fading in lithium-ion batteries.

Another research article titled: "Operating EC-based Electrolytes with Li- and Mn-Rich NCMs: The Role of O2-Release on the Choice of the Cyclic Carbonate" that was published in July attempts to hone in on the capacity fade problem associated with Manganese, leveraging Dahn's research. 

While these are open access articles, anything proprietary would not be published. This leaves stock market speculators who have a rudimentary knowledge at best of the science behind the battery chemistry with missing puzzle pieces. One bit of speculation I have is has Dahn had a breakthrough with this capacity fade problem? Is there a cheaper, manganese-based battery on the horizon?

Now someone might think this is great for all manganese miners, but what is the specific connection between Tesla and Manganese X? The key is in the Dahn name. MN has a Board Member and Director named Roger Dahn, who is the brother of Jeff Dahn. Jeff works in Dalhousie which is one province over from Battery Hill. While Tesla's factory is in Fremont, California, it wouldn't be out of line to think that it wants to secure Manganese supply at the source of its battery research.

Since I have made my bullish investment thesis on MN known, people have asked me about a target price. I do not have a target price on MN. I just believe it will go up on hype of the possible Tesla connection. I would need some sort of definitive, objective value to work with as a basis for forming a target price. MN is a pre-revenue company. It doesn't yet have a PEA out on its property. So how can I develop a target price? Plus in these Robinhood times where people chase story stocks harder than ever, there is no limit to how much hype the right story can receive. Inclusive of the latest financing and all warrants, MN has a fully diluted share count of about 126 million. At $0.23 would lead to just under a $30 million market cap but the exercising of all warrants would also bring in $4 million in cash. If MN was to secure an offtake agreement with Tesla for manganese at Battery Hill, this would undoubtedly push the stock well above the $30 million mark. 

In addition to the manganese property and connection by the Dahn name, MN also has its own battery subsidiary called Disruptive Battery Corp. This subsidiary is working on an air quality management product which would obviously be in high demand in COVID times both from a product sales and stock market hype perspective. I consider this to be icing on the cake rather than my main motivation for buying up MN shares.

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