Canyon Resources, an ASX-listed exploration and development company, is advancing the high-grade Minim Martap bauxite project in Cameroon. A feasibility stage project, Minim Martap is slated to become an important independent source of low-cost bauxite for the fast-growing seaborne market. Below are the key elements of Canyon’s investment case and share-price catalysts.
1) High-grade independent bauxite project with strong economics
Canyon’s Minim Martap project in Cameroon has the potential to become an important independent supplier of bauxite to the international market. In mid-2022, Canyon released the results of a bankable feasibility study (BFS), which envisaged production of up to 6.4mt of high-grade bauxite averaging 51% total alumina and low silica of 2% for the first 20 years of operation. It is underpinned by the large compliant mineral resource of 1,027mt at 45.3% AL2O3and 2.7% SiO2, with proved reserves of 109mt at 51.1% AL2O3and 2% SiO2, representing only c 10% of total resources. The project’s capital cost was estimated at US$253m, including rail upgrade, rolling stock and port transhipment solutions, while its C1 operating expense was indicated at US$24.0/t. At an average FOB bauxite price of US$45/t, compared to the current spot CIF benchmark price of c US$90/t, the project’s pre-tax NPV8was estimated at US$452m on a 100% basis.
2) An eventful year ahead: Updated BFS is an important near-term catalyst
In July 2024, Canyon was granted a mining convention followed by a mining licence in September, a major milestone highlighting strong support for the project from local authorities. The licence is valid for 20 years with an opportunity to renew, while the development work is required to start within two and production within five years. The project focus has since shifted towards additional resources definition to further increase the size of the resource base and to upgrade reserves. Additional work is being undertaken on the infrastructure solution that, given the conventional free dig nature of the mining operation, is a crucial part of the overall development. It entails upgrading the existing rail line and building a transhipment operation at the Douala port. The company is negotiating rail and port access agreements and is set to receive A$35m via options upon signing from its key shareholder. Updated infrastructure studies and mineral resource estimate will feed into the upcoming updated BFS, due in Q125, providing up-to-date operating and capital cost estimates. In the meantime, Canyon continues to build out its technical team in Cameroon, positioning itself for future development of the project.
3) Attractive bauxite market fundamentals supported by growing aluminium demand
While historically the aluminium market had a high degree of vertical integration, with the increasing number of independent refineries and stricter environmental regulations, the international and seaborne markets for bauxite has been on the rise. China, by far the largest global consumer of bauxite, imported record 142mt in 2023, up 13% y-o-y, with the majority of supply coming from Guinea and Australia. The seaborne bauxite market reached 177mt in 2023, a 16% increase just over two years. In addition to the above factors, the increase in bauxite trade and demand is underpinned by the growing consumption of aluminium, in particular in China, driven by its use in the energy transition industries such as electric vehicles, electronics and energy. In the nine months to October 2024, global primary aluminium production grew c 3% (China +4%) to 61mt and industry sources suggest that energy transition may require some 15–22mt in additional aluminium by 2030. This growth should continue to support bauxite demand.
4) Bauxite prices are on the rise, supporting valuation
Bauxite prices have been gradually rising since the end of the COVID-19 pandemic, averaging US$75/t (Guinea 45% CIF China) year-to-date compared to a c US$45/t trough in 2021, driven by growing demand, the bauxite export ban in Indonesia and production curtailments in China. This growth has recently accelerated with prices exceeding US$90/t in December on the back of the supply disruptions in Guinea, providing support to Canyon shares, which have reached their highest levels in five years. With its deposit in Cameroon, Canyon is well positioned to alleviate reliance on Guinea, building a more robust and diversified bauxite supply.
An equity market for independent bauxite producers is almost non-existent, with Canyon shares representing an attractive opportunity to gain exposure to the fast-growing bauxite market. One of the closest peers for Canyon is Metro Mining (ASX: MMI), which is valued at c A$380m compared to c A$250m for Canyon. Metro is an Australian bauxite producer with annual output of c 6wmt and mineral resources of 119mt at 49% Al2O3and relatively high silica of 14% (cf 3% for Canyon). In Q324, it reported FOB revenues of A$44/t and EBITDA of A$14/t (C1 cost of A$24/t). Canyon is well capitalised and had cash of A$20m at end September 2024. These funds will allow the company to advance Minim Martap to the updated BFS stage, which should be an important near-term catalyst for the stock.
5) Cornerstone investor with an intention to build the asset
Canyon has a strong backing from Fortuna Holdings (Eagle Eye Asset Holdings), which currently owns a 42% stake in the company. A family office based in Singapore and Dubai, Fortuna is a prominent mining investor with interests in Canyon Resources, FG Gold, Fura Gems and Prospect Resources among its investments. It is a long-term investor that has been gradually building its ownership in Canyon via on the market share purchases and is committed to bringing the Minim Martap project into production.
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