Sunday 19 December 2021

A Quick Q&A With Martin Kepman, CEO of Manganese X

I continue to hold a substantial position in Manganese X (MN.V) (MNXXF). MN has lagged other battery metals stocks, particularly in lithium and grapite. I consider Lithium Americas Corp. (LAC) (LAC.TO) to be the bellwether stock for the battery metals space. It has shot up to over $50 CAD recently and is currently valued at a $4.5 billion CAD market cap at Friday's close of $37.20. LAC has traded sub-$1 as recently as 2013, and sub-$4 as recently as March 2020. That illustrates the potential for these battery metals stocks, even as they start out as microcap penny stocks. Especially the ones like MN which have pulled back significantly from highs made earlier this year.

I believe that MN's lag in the industry is about to change. We are at the peak of tax loss selling season and things tend to turn around for beat up stocks that have potential in mid-December through February. Keep in mind what I have said before about MN as one of the handful of microcap manganese pureplays on the market. A run on the manganese sector only needs to be a small portion of the run on lithium in order for MN to do extremely well. In the meantime, the company has its individual set of opportunities and challenges in the near term. 

Martin Kepman, CEO of Manganese X (MN.V) (MNXXF) was recently featured in a video:

The production value is poor, but the content of the video is great. You can tell that he is enthusiastic about the near term prospects of MN. However, this interview hasn't sparked much buying as the stock price still rests slightly under $0.30, much closer to the $0.19 52-week low than the $1.04 52-week high. A part of me understands this as the market has been brutal for small caps while the large players boost the S&P 500. Another part of me takes a look at the performance of the lithium stocks as well as the price performance of manganese this year and knows it's only a matter of time before MN catches up. 

What I find with companies waiting on a PEA is that it can sometimes be a sell on news event. Especially if investors have been waiting on the PEA for a while. The issue is after the PEA is out there, what's next? With that in mind, I sent Martin some questions so I can get a feel for what's next for MN. He sent me an email back then we had a phone call. I will be posting my questions exactly how I asked them while I will be paraphrasing his answers. Before posting this, he will also have reviewed what I said just to make sure that I interpreted his answers correctly.

Q1: How will you go about commercializing the resource? I assume you won't be raising the capital under the MN umbrella all alone given how dilutive that can be. Do you plan to partner with a larger mining company?  Do you plan an offtake agreement with an EV producer? Do you plan to just get bought out or sell the property?

A1: Martin said that the company's first priority is to get a very positive PEA. There have been several inquiries for financing from some institutions but the company wants to wait. He pointed out that the company has about $4.75 million in cash so it's not in a bad spot financially and can pick and choose the right time and with who to do deals with in the future. He expressed frustration that while past deals got the company the strong cash balance, that came at the cost of dilution at lower prices which is what has negatively impacted the share price, in his opinion, unfairly low. His focus is on the smaller investor and wants the stock price substantially higher. He will be investigating all opportunities after the PEA, incuding non-dilutive ways to take the next step. He mentioned that the company has several European NDAs with some major cathode manufactures and North American suppliers in multiple industries (not necessarily electric vehicles) who are EXREMELY INTERESTED (in capitals his words) due to transportation costs, duties, tariffs and supply chain issues. They currently get their supply from China, and the cost of shipping a container is almost doubling the cost of the material itself right now. MN also has a great relationship with Quebec Gouvernment Investmente Quebec.

My opinion: It sounds like there is going to be great and immediate demand for manganese on North American soil to avoid these shipping and logistics costs. I wonder if MN will be able to get an offtake agreement or strategic investment from one of these North American companies, as their timelines might be more desperate and immediate to get something up and running compared to TSX financing timelines. To me, that would be the single biggest bullish event for the stock. A PEA could lead to a NPV of $5 billion and it won't move the needle much if people know that it's contingent on a massive financing and who knows how long that could take. On the flip side, a billion dollar NPV but with quick moves made in the financing and construction side of things would cause a stock to skyrocket.

Q2: You brought up the manganese purification process with Kemetco again. Is this process proprietary to MN? Can Kemetco use it on other similar resources independent of MN? Do MN and Kemetco have an ability to form a JV and sell this tech to other manganese mines? If so, what and where would be the market given the limited Manganese deposits in North America.

A2: Yes, the manganese purification process with Kemetco is definitely proprietary to MN. Kemetco can not use it on other similar resources independent of MN. There is the possibility of licencing out the technology. This technology can be used worldwide on either carbonate or oxide manganese. Martin reiterated the great relationship with Kemetco and spoke very highly of their professionalism, as well as with Wood, the developers of the PEA.

My opinion: It sounds like MN is setting itself up to be an extraction/processing technology play as well as a mining play with manganese. I think this would be a smart idea to promote both sides going forward as a unique investment opportunity. We see how American Manganese Inc. (AMY.V) is doing with its recycling/upcycling technology -  also working in conjunction with Kemetco - and Wenden Manganese stockpile. AMY currently is at a $140 million market cap, four times higher than MN. Imagine if MN could offer a technology aspect to producing battery metals as well as the metals itself.

Another interview held by Proactive took place with their analyst Christopher Ecclestone:

This interview was more about the Manganese industry in general, but MN was mentioned. This video is good for understanding the importance of high-purity Manganese as a cheaper replacement for Cobalt in the production of electric vehicle batteries, as well as undertstanding the basic uses of Manganese and its near-term market outlook. (Hint: it's quite bullish)

I look forward to the developments in 2022. The PEA will be the major event that hopefully is released in Q1, but that will be just the beginning.

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