Australian Bauxite is on a roll with development of Campbell Town mining centre
March 27, 2015 David Lennox
"Australian Bauxite (ABX) has been swift in developing its first bauxite mining centre near Campbell Town in Tasmania. Australian Bauxite mobilised the construction contractor to the site in December 2014 and was producing its first bauxite within three months.
The new Campbell Town mining centre comprises three bauxite deposits, in Bald Hill, Fingal Rail and Nile. First mining is under way at the Bald Hill deposit, where Australian Bauxite is extracting direct shipping ore (DSO) quality bauxite. The Campbell Town mining centre was developed within a modest capital budget of $5 million and was completed on schedule.
The Bald Hill bauxite deposit hosts a resource of 1.6 million tonnes, with 1.18 million in the indicated category and 0.42 inferred. The Campbell Town mining centre resource totals 3.51 million tonnes categorised into indicated of 1.67 million tonnes and inferred, 1.84 million tonnes. The resource will support an initial mine life of 10 years.
Australian Bauxite's mining plan will see the Bald Hill deposit mined first, followed by the Fingal Rail and Nile deposits. All three deposits appear to host extensions to the known deposit. In the first month of operations at the Campbell Town mining centre, bauxite mining and screening exceeded the 500,000 tonnes annual capacity, hitting a run rate of 900,000 tonnes.
During ramp-up, rail shipments will be a modest 1100 tonnes of DSO bauxite per day, increasing to about 2000 tonnes a day later in the year. Bauxite shipments to customers are expected to begin before the end of the June quarter 2015.
The quality of the DSO bauxite will see mining and screening operating costs come in below the modelled number of $8 a tonne free on board. Australian Bauxite was able to remove an ore crusher from the processing plant, which we estimate will save around $1.50 a tonne in operating costs. Not requiring a crusher in the process flow will have saved, we estimate, up to $1 million in development costs as well.
Australian Bauxite is debt free and had a discretionary cash reserve of $3.5 million.
With operations under way at Campbell Town, Australian Bauxite is turning greater attention to its DL-130 bauxite deposit, also in Tasmania. The DL-130 project will become Australian Bauxite's second mining centre, with operations expected to start in 2016. What is important about the DL-130 bauxite deposit is the fact that it is a Campbell Town twin and is closer to the Bell Bay Port.
Tasmania has been the focus of attention as the first production centres come to life. With this process now well under way, Australian Bauxite is evaluating the best way forward for its mainland bauxite deposits in Binjour, Inverell-Guyra and the Goulburn deposits.
Overall, Australian Bauxite is developing its suite of bauxite assets in a manner that is adding shareholder value. Going forward, Australian Bauxite will be well leveraged to any improvement in the bauxite price.
Since December 2014, Australian Bauxite's share price has been trading in a broad descending triangle, which could indicate volatility to the downside to complete the pattern. A recent surge in the price has taken out the resistance around the 29 to 30 cent region to break the descending pattern. The price has moved to the next resistance level of 32 cents, and may now have to consolidate to resist any price weakness.
Worth buying?
Based on our estimated operating costs, the Campbell Town mining centre will generate robust operating margins. Amplifying the numbers by the weak Australian Dollar and a bauxite price that is resisting weakness could see a major rerating of Australian Bauxite.
Throw into the mix mining from DL-130 next year and the bauxite assets held along the east coast of Australia; this places Australian Bauxite in a strong position to deliver future value."
Disclosure: Fat Prophets, and interests associated with the company, hold shares in Australian Bauxite.
David Lennox is the resource analyst at Fat Prophets share market research. To receive a recent Fat Prophets Report, call 1300 881 177 or email [email protected].
ABX Price at posting:
36.5¢ Sentiment: None Disclosure: Not Held
