Letter from Pnina, page-75

Don’t forget we have Bauxite. If this takes off QBL _⬆️

Alumina looks for bauxite deals ahead of looming China shortage
https://www.copyright link/content/dam/images/g/t/u/m/n/z/image.related.afrArticleLead.620x350.h10rwo.png/1527738399481.jpg
by Peter Ker
Alumina Limited will consider acquiring new bauxite assets and expanding its existing mines in the belief that China will be short of the bulk commodity within three years.

Australian bauxite miners have in recent years been locked in a battle for market share with those in Guinea, who have ramped up production to feed growing demand from alumina refineries in the Middle East and China.

Alumina and its joint venture partner Alcoa have exposure to bauxite assets in Western Australia, Guinea and Brazil, and the company's chief executive Mike Ferraro indicated he was keen to grow the company's bauxite output through organic and possibly inorganic means.

Advertisement
"We've got bauxite in Western Australia, Guinea and in Brazil and each of those has different advantages and disadvantages, so I think we would certainly look to not only growing organically those mines for third-party exports, but also if there are opportunities to develop new mines or acquisitions closer to market, good quality bauxite, we would certainly be looking at it pretty closely," he told The Australian Financial Review.

https://www.copyright link/content/dam/images/h/0/w/g/q/w/image.imgtype.afrArticleInline.620x0.png/1524634099233.jpg
"From 2021 China will go significantly short bauxite, so we expect around that time the price of bauxite will go up."

AWC

• MMI

• RIO

ALUMINA FPO (AWC)
$2.65-0.02-0.75%
volume 7554626value 20009707.4

• 5 YEARS
  
• 1 DAY

May14Dec15Jul17GMT+1000 (AUS Eastern Standard Time)Jun13Jun1811.522.50.9782.716
Last updated: Tue Jun 05 2018 - 10:17:51 pm
View full quote
ASX Announcements Expand
Mr Ferraro's optimism toward the outlook for bauxite echoes that of Rio Tinto, which isspending $US1.9 billion ($2.5 billion) expanding its "Amrun" bauxite operations near Weipa on Queensland's Cape York Peninsula.

Rio revealed earlier this year it was building Amrun in a way that would easily facilitate further expansions.

Smaller miners such as Metro Mining have also got a foothold in the growing industry, with Metro shipping first bauxite from its Cape York operations in May.

Alumina and Rio traditionally consumed all of their bauxite in their own alumina refineries, but that vertical-integration has partially broken down as prices have incentivised the companies to sell bauxite to third-party customers.


"Our strategy is to continue to grow our bauxite production to meet the growing demands of the third-party market," Mr Ferraro said. "We are expanding production of our interests in Guinea and Brazil in addition to the expansion currently under way in Western Australia. We are able to increase capacity at our bauxite mines for a relatively modest capital cost."

If Alumina were to acquire bauxite assets, it would almost certainly have to do so in partnership with Alcoa under the terms of the joint venture renegotiated in 2016.

Alumina and Alcoa exported about 6.6 million tonnes of bauxite to third parties in 2017, while Rio grew its third-party sales by 10 per cent in 2017 to 32 million tonnes.

UBS upgrades long-term view

Australia is the world's biggest bauxite producer and grew its production of the commodity by 5.2 per cent in 2017.

Australian miners were forecast to export 25.8 million tonnes of bauxite in 2018, according to the federal government's chief economist, and that tally is forecast to rise to 30.9 million tonnes by 2021.

Australian and Brazilian miners have been the consistent suppliers to a market that has endured several supply shocks; Indonesian exports were reduced in 2014 under a government order to see more raw materials beneficiated domestically.

Indonesia's exit sparked a sudden bauxite rush in the Malaysian state of Kuantan, which was also soon halted by Malaysian government concerns about the impact on the environment and nearby communities.


Fearing a repeat of the iron ore boom when China's reliance on Australian producers sparked huge price rallies, Chinese refiners have sought to grow the Guinean bauxite industry, where exports have increased rapidly.

Metro Mining will initially export about 2 million tonnes of bauxite a year from Queensland before increasing that to 6 million tonnes within four years.

Metro managing director Simon Finnis said his company had sold 50 per cent of this year's bauxite production and 66 per cent of next year's production on long-term contracts, and would sell the remainder on spot markets.

"I do think there is some benefit to being exposed to the spot price even if it's a small amount of your tonnage," he said.


The bauxite exported by Alumina and Alcoa from WA has a lower alumina content than Rio's Queensland bauxite, but has less reactive silica which means it requires less caustic soda to refine, keeping costs down for refiners.

Bauxite prices have averaged $US48.6 per tonne in 2018 according to the CBIX index, and the commodity was fetching just over $US46 per tonne at last report.

UBS recently upgraded its long-term bauxite price forecast from $US40 per tonne to $US45 per tonne based on the belief that China's war on pollution would push the nation's alumina refineries to increasingly seek higher quality products.

Alumina Limited shares have surged by 260 per cent over the past 29 months, and last traded at $2.67.