The second-largest manganese mine in the world could stay offline for months after a mid-March cyclone flooded mine pits and smashed a bulk carrier into a pier, analysts told S&P Global Commodity Insights.

The island-bound mine's suspension will put pressure on supply and eventually boost prices for the steelmaking ingredient and battery metal, analysts said.

South32 Ltd. suspended operations at its 60%-owned Groote Eylandt mine in Northern Australia on March 18. The mine accounted for 11.5% of global manganese supply in 2022, behind Eramet SA's top-producing Moanda manganese mine in Gabon, according to S&P Global Market Intelligence data. Anglo American PLC has a 40% stake in Groote Eylandt, which is operated by South32 subsidiary Groote Eylandt Mining Co. Pty. Ltd. (GEMCO).

While concerns over manganese's weak demand outlook have depressed ore prices, which have not moved since the suspension, the shutdown is set to crimp supply and could raise prices in the near term, analysts said.

"We expect a 20% jump in prices, but markets always tend to solve such supply problems in a six-month time frame," Colin Hamilton, BMO Capital Markets' managing director for commodities research, told Commodity Insights.

Damage done

South32 did not answer emailed questions about needed repairs and instead pointed Commodity Insights to a March 20 announcement that it had suspended guidance for the manganese operation.

Given the extent of damage to the mine and wharf, the suspension might last three months, Macquarie analysts said in a March 20 note. Hamilton took a similar view.

"I'd be surprised if there isn't a three-month disruption at least," Hamilton said.

While details on contingency planning are unclear, South32 could turn to barging and other ports to get supplies and ore moving again, Hamilton said.

South32 impact

Macquarie analysts estimated $100 million in remediation capital expenditure for South 32 and production and shipment disruptions until the second fiscal quarter of 2025.

South32 had guided for 3.4 million wet metric tons of attributable production in fiscal 2024. In 2023, South32 reported 3.5 million wet metric tons of production.

The mine is a key revenue and profit driver. Groote Eylandt accounted for $688 million of South32's attributable revenue and $369 million of the miner's attributable EBITDA in fiscal 2023. That compares to $7.43 billion in overall revenue and $2.53 billion in EBITDA for the same fiscal year.

Production from other South32 manganese operations could offset potential financial pain from the shutdown, especially if manganese ore prices climb because of tighter supply, Macquarie analysts said. But other manganese mines do not have much extra capacity to quickly fill demand, Hamilton said.

Meanwhile, the mine suspension could raise the supply outlook for manganese more broadly as Groote Eylandt's remaining mine life is relatively short.

"The biggest implication from this is the reminder that GEMCO only has six years of mine life left, so you might get some more interest in restarting [other projects]," Hamilton said.

Soft steel demand and an overstocked manganese market have muted the impact of the mine suspension, Andrew Zemek, special adviser to CPM Group, a US-based commodity research firm, said in an email.

Still, Zemek said the supply disruption could boost prices, especially if manganese demand rebounds in the short term.

"With China's economy showing some signs of life, we were expecting [the manganese] ore price to move higher even before the Groote Eylandt disaster," Zemek said. "Even a temporary mine closure may accelerate this rise."