Advanced Magnesium Ltd - Annual Report 2006

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	CEO'S REPORT



	Overview It is now twelve months since Advanced Magnesium Limited, through its wholly owned subsidiary, Advanced Magnesium Technologies Pty Ltd ( AMT ) first launched its exciting new alloy AM-lite ® onto the international market. The Board and Management are pleased to report that, subject to the successful commercial launch of a number of products from development programs currently underway, the Company is projected to achieve annualised sales of around 5,000 tonnes per annum (tpa) of AM-lite by the end of June, 2007. This represents a substantial achievement on the part of AMT and reflects both the outstanding characteristics and qualities of our products and the professionalism and dedication of our technical staff and international marketing teams. It also reflects an exciting shift from product trialling to production commitment, in the process of introducing our new product to the global magnesium markets. Since the end of the 2005 financial year AMT has received significant commitments from major manufacturers to convert existing products made from other materials to AM-lite. Success with these programs is likely to lead to orders for AM-lite sufficient to cover and then exceed the Company’s operating cost requirements by June 2008. The Company remains debt-free and has current cash of $12.1m as at 30 June 2006 . The cash operating costs over the last 12 months were on budget at $7.8m and are not expected to be exceeded in the current financial year. During the past year AMT has achieved three very significant milestones: AMT ’s international marketing team has given detailed technical presentations on AM-lite to over 150 major Original Equipment Manufacturers (OEMs), Tier One suppliers and diecasters, and has completed 44 production trials of the alloy with potential customers. These trials have enabled a number of major players in the global magnesium industry to thoroughly test AM-lite and verify its cost saving potential and other performance claims; The Company has now formed cooperative alliances with nine priority customers (three in each of China, Europe and North America ) to focus on a few new commercial applications which are likely to bring large sales orders in the near team; and The Company has provided support to its alliance partner, MacDermid Inc, to install MacDermid’s new electroplating and conversion coating technology in existing commercial surface coating facilities. These technologies were specifically developed for AM-lite. The aim is to have two electroplating facilities operating in each of the three major regions of China, Europe and North America by the end of 2006. In June 2006 AMT formed a Joint Venture with Hyder Consulting, to offer AMT ’s AM-cover™ technology to the global magnesium industry. In comparison to the cover gas technology traditionally used, AMT ’s cover gas technology can reduce greenhouse gas	emissions by up to 99% and earn associated Certified Emission Reduction units (carbon credits) under the Kyoto Protocol. These carbon credits can then be traded on the international carbon market and represent a new and significant potential future revenue stream for AMT . The Company has maintained its support for the ongoing research activities of the Cooperative Research Centre, CAST, to develop a pipeline of new magnesium technologies for the Company in the future. AM-lite ® AM-lite and its accompanying surface finishing technology is the product of intensive research and development by AMT , its research partner CAST and MacDermid Inc. The new alloy has considerable potential to expand markets for magnesium into areas that have previously been the domain of zinc and aluminium diecasting alloys and injection moulded plastics. The decorative diecasting market requires an alloy that has the light weight attributes of magnesium combined with the diecastability and surface finishing characteristics of zinc. Over the past two decades, zinc has lost much of the automotive decorative market, primarily to plastics but also to aluminium and magnesium AZ91D, because of its weight. More recently, the rapid rise in zinc prices has made it increasingly favourable to substitute zinc diecastings with other materials that can fulfil the requirements of decorative applications. More than three times as many parts per unit weight of metal can be produced from magnesium alloys compared to zinc. Thus, based on current metal prices, the cost of metal in diecast parts is ~70% cheaper for AM-lite than for zinc. Magnesium AZ91D has many admirable attributes and has served as a work horse alloy for the magnesium industry for many years but cannot fulfil all of the requirements needed for a wide range of decorative applications. It is difficult and expensive to electroplate AZ91D. Moreover, the diecastability and as-cast surface quality of AZ91D is considerably inferior to zinc, so that diecast AZ91D generally requires extensive pre-work (polishing, buffing, filling) as part of surface finishing operations. AZ91D also has the typical disadvantages of magnesium alloys relating to melt losses in the foundry, due to dross and sludge formation, and the need for external recycling of casting returns. Diecast AM-lite has surface characteristics that are very suitable for surface finishing operations and MacDermid has developed specific chemical pre-treatments, Bondal ® Mg for electroplating and Chemidize Mag Prime for painting and powder coating, that enable high quality durable electroplated and painted surface finishes to be applied. AM-lite ® Market Development and Experience Gained The marketing focus for AM-lite has been on a wide range of diecasting applications where diecastability and decorative surface finishes are of prime importance. The key market sectors are general hardware, bathroom and kitchen fittings, furniture fittings,
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ADVANCED MAGNESIUM LIMITED \| ANNUAL REPORT 2006