by Oliver Probert — last modified Mar 04, 2015 01:35 PM
— filed under: Weekly Top Stories
With alumina prices tipped to rise in 2015, junior miner Metallica is just one of several Australian junior bauxite miners preparing to capitalise.
London based macroeconomic research firm Capital Economics stirred the pot late last week with the assertion that bauxite – the precursor to alumina – was likely to see a price lift thanks to Indonesia’s ongoing export ban, and depleting Chinese stocks.
Until recently, China relied on Indonesia for 70% of the bauxite used to feed its alumina refineries. But Indonesia last year imposed a ban on the export of most ores, in an effort to have miners build refineries – creating jobs – on Indonesian soil.
Capital Economics said the demand for alumina is still strong due to a growing demand for its key derivative, aluminium.
The analyst is predicting alumina to rise from the current price, just over US$350/tonne, to US$375/tonne by the end of the year.
In October last year, ABHR profiled a number of Australian bauxite juniors who were already preparing to take advantage of speculation on bauxite.
Five months on, it seems a good time to take another look.
One company not mentioned last October was Metallica Minerals Limited (ASX: MLM). The miner has enjoyed a healthy rise in its share price over the last month, from around 5.0c a share to about 5.8c a share this morning, and just this week it announced its confidence going forward.
“Equity market sentiment in the seaborne bulk commodities trade will swing intensely behind bauxite for most of 2015 as major changes in bauxite’s supply chain impact fully this year,” the company said on Tuesday.
Metallica is building a heavy mineral sands mine near Weipa, on Queensland’s Cape York, and hopes to commence production in mid-2015.
Metallica managing director Andrew Gillies said the new mine was well timed, thanks to “structural change happening in global traded bauxite shipments”.
“These structural supply changes have all the hallmarks of favouring proven bauxite provinces such as Cape York,” he said.
Gillies believes Metallica’s mine “can deliver robust bauxite grades and volumes into China and South East Asian consumers using the leverage of close proximity, low sovereign risk, sustainability and high grades.”
On February 27 Metallica confirmed to the market that its Weipa site contained direct shipping ore (DSO) bauxite, following two assay campaigns on samples from the site.
“The first round of assay tests results made available in January had delineated at Area A, an initial but significant and well defined footprint of a high grade style known as pisolitic bauxite,” the company told the ASX.
“Those results prompted Metallica to order a second round of assaying to determine whether parts of the newly defined area hosted significant grades of aluminium oxide (the main component of bauxite material).”
Results of the second program confirmed the presence of DSO bauxite – a grade of material that can be mined and directly exported without further major treatment.
Given that result, Gillies was confident when he presented his company’s market assessment to the ASX on Tuesday.
“With forecasts already in 2015 of likely significant increases in aluminium prices as Chinese producers struggle to contain costs, I have no doubt that bauxite will emerge as a top tier resource commodity for 2015,” Gillies said.
“Bauxite’s 2015 market fundamentals are hard to challenge.
“While bauxite has historically been the poor performer relative to other bulks (e.g. coal and iron ore) and all metals during the boom years post 2003-2004, the tide is turning, underpinned by Indonesia’s sustaining commitment to ban bauxite exports, and India’s decision to increase bauxite tariffs.
“I believe, despite some comment otherwise, that it is unlikely that Indonesia will reverse its bauxite export ban,” he added. “This decision has been backed by the new President and upheld in December last year by its Constitutional Court.”
It’s not just the managing director singing Metallica’s praises, however.
Investment group Breakaway Research on March 2 tagged Metallica as a speculative buy, on account of its low capex, near term strategy, its planned near term cash flow, its positive drilling results and its additional prospects.
Breakaway said the company’s planned developments “would be timely, given growing demand from Chinese merchant alumina refiners for imported bauxite, largely due to the Indonesian imposition of quotas, and in some cases bans on exports of unprocessed materials.”
Metallica currently has a market capitalisation of just $9.85m, but Breakaway listed it as the best positioned bauxite explorer on the ASX.
One company that might take issue with that assessment is the bauxite junior with one of the highest market capitalisations: Australian Bauxite Limited (ASX: ABX).
Australian Bauxite, with its market capitalisation of just under $38m, is developing its Bald Hill bauxite project in central northern Tasmania.
“Mining of two bauxite pits at Bald Hill during January has stockpiled several thousand tonnes of ore, which is being screened in late January to optimise extraction and screening configurations,” the company told the ASX on January 29.
Australian Bauxite is also exploring additional projects in Tasmania, central NSW and in Queensland.
Another junior, Queensland Bauxite (ASX: QBL) is in the pre-feasibility stage of developing its North Queensland Project. The project, located just 20km from the port of Mourilyan and near an active rail line, is QBL’s flagship for bauxite exports.
The company announced a trading halt on Tuesday, pending the release of an announcement. The halt is in place until commencement of trading on Thursday, March 5.
QBL recently announced a deal with the Far North Queensland Ports Corporation (aka Ports North), securing 800,000 tonnes of export capacity at Mourilyan.
“Logistics and in particular port capacity are key to our commercialisation strategy, especially to markets in Asia,” executive chairperson Pnina Feldman said on February 10, when that deal was announced.
“[The port access] is an important and necessary step in confirming our commercial path to market and gives us further confidence in our ability to execute on our strategy of exporting product to our key seaborne bauxite markets.”
Another junior at the pre-feasibility stage of its development cycle is Metro Mining (ASX: MMI) – formerly known as MetroCoal.
The pre-feasibility study on MMI’s Bauxite Hills project, also located near Weipa on Cape York, delivered a net present value of $197m.
MMI, which currently has an ASX market capitalisation of just under $12m, and a share price of 3.9c, was described on February 24 by analyst Morgans as an “undiscovered bauxite beauty”.
Morgans described the Bauxite Hill project as “a potential company maker,” and said the pre-feasibility study indicated that “the simple, low capex development would see MMI exploit compelling bauxite market dynamics.
“Equity market recognition, and therefore the ability to fund the development, is the biggest hurdle, however MMI looks poised to re-rate given the potential upside in our view,” the analyst said.
“Bauxite projects traditionally have high barriers to entry due to infrastructure hurdles however Bauxite Hills looks relatively simple via its free-dig mining, handling and barging process.”
On the other side of the country, Bauxite Resources (ASX: BAU) is engaged in port and rail studies relating to its projects in WA’s Darling Range. Despite an ASX price drop off from 14.5c a share in September last year to around 9c a share today, BAU is confident in its position.
“It is expected that China’s bauxite import inventory will continue to shrink during the next six months,” the company said in a December report.
“Once these stockpiles are exhausted, it is expected that China will require several new significant sources of imported bauxite to satisfy demand out of China.
“Bauxite Resources continues to focus on the evaluation of development options for the Company's 100% owned Fortuna project in Western Australia's Darling Range, in conjunction with the identification and study of quality bauxite projects within our joint ventures ensuring a pipeline of projects to provide longevity to future operations.”
ABX Price at posting:
25.5¢ Sentiment: None Disclosure: Not Held
(20min delay)