The Need for Environmental Solutions

Magnesium is a metal for the 21st century. It is light weight, recyclable and versatile. The diversity of our company’s suite of alloys and production process technologies means that we are well positioned to take advantage of opportunities in industries as diverse as 3C’s (cameras, cell phones,computers) with AM-lite and the automobile industry with AMHP2 plus and AM-EX1.

However, it is with AM-cover and AM-converter that we expect to make the biggest immediate financial and environmental impacts.

The growing global concern over climate change has lead to an interest within the magnesium industry to find an alternative to the SF6 based protective atmosphere that has been used for the past 35 years. The greenhouse effect or Global Warming Potential (GWP) of SF6 is 23,900 times that of C02. The emergence of mechanisms, under the direction of the UN, to quantify reductions of greenhouse gas emissions, and the establishment of markets to trade carbon credits generated from these reductions has resulted in significant financial incentive to implement technologies such as AM-cover, which reduces greenhouse emissions by over 97%.

AM-cover is one of three alternatives approved by the UN in their methodology to replace SF6 in the magnesium industry. AM-cover offers excellent protection of magnesium and compared to the other alternatives there are significant advantages in safety and implementation. Companies specialising in carbon credit trading and facilitating the complex process for approval of emission reduction projects have taken notice of the potential offered in switching from SF6 to AM-cover. Aggressive marketing by these firms is expected to result in significant opportunities for growth in the licensing of AM-cover during the next year. For the magnesium industry the carbon credit revenue resulting from switching to AM-cover removes financial barriers to making the change. For our company, the availability of carbon credit revenue opens the possibility of negotiating a share of this revenue and structuring a more flexible licensing arrangement for the use of AM-cover. The revenue from just a small share of the potential carbon credits can be two to four times that available from the expected AM-cover licensing fee.

AM-converter is being successfully used for in cell recycling by cold chamber die casters in Europe. Its potential market has been broadened to include hot chamber die casters and Chinese primary producers and in the past few months its environmental credentials have been recognised. In addition to enabling users to reduce operating costs and increase productivity, AM-converter operators are able to lower the use of cover gas, decrease energy use and emissions and substantially reduce waste that would go to landfill.

Carbon Trading

Use of cover gas in the magnesium industry is essential. It protects molten magnesium from severe oxidation and allows the metal to be handled safely. Sulphur hexafluoride (SF6) has been the gas of choice to date, providing a non-toxic, safe and odourless gas protection system. Magnesium typically requires approx. 0.5kg SF6 per tonne molten magnesium to be protected. However SF6 has a global warming potential of 23,900 tonnes equivalent CO2 per tonne SF6, and in today’s environment, Governments around the world are moving to phase out the use of SF6 by 2008. AM-cover™ offers similar benefits to SF6, but with the added advantage of lower operating costs, significantly improved melt losses, and a reduction of up to 99.6% in greenhouse gas emissions i.e for each tonne of molten magnesium protected, AM-cover™ could avoid 22,000 X 0.0005 X 0.996 = 11.0 tonnes CO2e in greenhouse gas emissions. Molten magnesium needs protecting when it is produced as primary metal, and also when ingots are remelted for diecasting.

Market mechanisms have been established with a view to assist companies and governments achieve compliance with greenhouse gas emissions reduction obligations established by the Kyoto Protocol on climate change. The market mechanisms consist of Joint Implementation (JI) and Clean Development Mechanism (CDM) project mechanisms, and provisions for International Emissions Trading.

AM-cover qualifies under the Kyoto Protocol project-based mechanisms as a Clean Development Mechanism (CDM) project; provided it can be established that:

Projects that reduce greenhouse gas emissions from a baseline scenario can generate carbon credits (CERs) which can then be sold. The spot market value of these CERs is yet to be established, but could have a value between US$5-10 per CER. (CERs have been traded on a forward basis at between US$5-15 historically).

According to the World Bank report, issued earlier in May this year, ‘State and Trends of the Carbon Market 2006’, the overall value of the global aggregated, carbon markets was over US$10 billion in 2005. In the first quarter of 2006, overall transactions worth US$7.5 billion had led some to predict that this new financial market would be valued at between US$25-30 billion in 2006."