Giant magnesium plant plans back on track

Magnesium is used by car makers to reduce vehicle weight and cut emissions

By CNN's Grant Holloway

BRISBANE, Australia (CNN) -- The Australian Magnesium Company's bid to build the world's largest the magnesium smelter is back on track after the company secured more than $100 million in funding from the Federal Government and the Queensland State Government.

The company is now expected to go back to the market to raise a further $280 million via a fully underwritten share offer to fund the ambitious $700 million project.

AMC has previously raised $500 million in debt funding, but was forced to pull an earlier global stock offering off the market due to a lack of demand from international investment institutions.

The new stock offering will include an interest-bearing coupon funded by the Queensland government similar to that provided when the government privatised the financial services company Suncorp Metway.

A spokesman for AMC, Simon Jemison, told CNN Thursday that the company was "continuing to work on its new funding proposal and expects to provide more details towards the end of the month".

The metals project is planned for an area near Rockhampton, in central Queensland, near large magnesium deposits.

Project of national significance

Federal government Senator Nick Minchin said the Government had agreed to help the company because the proposal was of national significance.

"We see the development here of a downstream magnesium diecasting industry that potentially involves many billions of dollars of investment and thousands of jobs generated by the plant itself and the downstream diecasting industry that's likely to develop around the magnesium smelter," he said.

AMC has already signed a 10-year contract with the Ford Motor Company to supply 45,000 tonnes of magnesium a year for use in its car manufacturing processes -- more than half the proposed annual output from the new plant.

Demand for lightweight metal growing

Magnesium is growing in popularity with car makers because its combination of high strength and low weight -- it is 35 percent lighter than aluminum and 75 percent lighter than steel -- helps the car companies meet new environmental standards on gas emissions and fuel consumption.

The metal is also used in laptop computers, mobile phones and power tools.

The AMC plant will be the largest and lowest production-cost operation in the world. It will source its magnesite ore from the nearby Kunwarara deposit, the biggest known deposit of its type.

Demand for the new metal is estimated to grow at about 15 percent a year to 576,000 tonnes per annum by 2009 of which AMC will supply around 90,000 tonnes a year.