Research compiled by Graeme Newing 12 February 2017

Transcription

1 Bauxite hopefuls A mixed bag There are five companies listed on the ASX for whom bauxite is their main focus. Most have a market cap of under $20m and none is yet in production in any significant way. In order of merit I would put MMI first, followed by MLM then ABX well behind. BAU and QBL appear to be of little merit for their bauxite. Their share prices merely reflect their value as corporate shells. BAU appears to be extraordinarily cheap, whereas unfortunately QBL is in the hands of directors who do not appear to add value. The bauxite market is oversupplied at present so prices are off the boil and it is more difficult to secure offtake agreements and funding. A brief description of each company is provided overleaf. Table 1: Bauxite companies listed on ASX MMI MLM ABX BAU QBL Price $ Mkt cap $m Cash 31 Dec $m Debt 31 Dec $m Enterprise value $m Attrib resources Mt Available Al 2 O 3 % Reactive SiO 2 % Attrib pdtn Mtpa n/a 1.5 Attrib capex $m Op. costs FOB A$/t Royalty % 10% 10% 10% Shipping US$/t Source: Company reports 1

2 Australian Bauxite Ltd (ASX:ABX) Price 13.5, mkt cap $19m, cash $1.8m, debt nil Directors: Paul Lennon (NE Chm), Ian Levy (MD and CEO), Ken Boundy (NED) Substantial shareholders: Citigroup Nominees 8.1%, Woodstock S/F 6.5%, Gleneagle Securities 5.3% The company s current operations are in north east Tasmania, shipping out of Bell Bay. Bauxite resources are 14.7 Mt within a number of small deposits grading 31% to 44% Al 2 O 3. ABX is in production on very small scale, with sales being less than 100,000t in calendar Cash receipts from customers were $2.6m which almost covered its cash operating costs. Sales are being made to fertiliser and cement works, rather than alumina refineries, during this period of relatively low prices. The company is looking to expand production to >1 5Mtpa by entering into long term contracts with cement companies. The company has some large resources of bauxite amounting to over 100Mt within a number of bauxite deposits in NSW and QLD. These are located some distance from the coast with consequent high transport costs and appear to be relatively low grade. Some have high overburden ratios. Bauxite Resources Ltd (ASX:BAU) Price 6.6, mkt cap $14m, cash $16.7m, debt nil Directors: Robt Nash (NE Chm), Luke Atkins (NED), Neil Lithgow (NED), Zhaozhong Wang (NED) Management: Patrick Soh (CEO) Substantial shareholders: Atkins family 17.1%, HD Mining 9.2%, Neil Lithgow 8.2%, etc. The company s Dionysus and Athena tenements in the Darling Range located some 100km north east and 120km south east of Perth, respectively, are subject to a joint venture whereby Chinese company HD Mining & Investment Pty Ltd is earning a 40% interest by funding all expenditure through to committing to a feasibility study, and a further 20% interest through to committing to commence mining. Total resources as at 30 June 2016 stood at 87.6Mt (mostly inferred) grading 41.7% Al 2 O 3 or 31.9% available Al 2 O 3, and 16.6% SiO 2 or 3.3% reactive SiO 2. Fiscal constraints advised by HD Mining in 2015 led to the JV deferring a decision to commence a feasibility study. In the meantime BAU is focussed on new opportunities both within and outside the bauxite industry. In May 2016 the company announced it had secured an exploration licence over the Lort River lithium prospect between Ravensthorpe and Esperance in the SW of WA, 120km east of the Mt Cattlin lithium mine. 2

3 Metallica Mining Ltd (ASX:MLM) Price 6.5, mkt cap $17m, cash $1.2m, debt nil Directors: Peter Turnbull (NE Chm), Steve Boulton (NED), Andres Gillies (NED), Shu Wu (NED) Management: Simon Slesarewich (CEO) Substantial shareholders: Jien Mining Pty Ltd 17.6% MLM has a 50% interest in a bauxite project located on Urquhart Point near Weipa on western Cape York QLD. Its joint venture partner is Ozore Resources Pty Ltd owned by a private Chinese investor. A mining licence is expected to be granted in the current quarter with shipments of DSO bauxite scheduled to commence late in the June quarter 2017, immediately after the wet season. Shipments will be from the nearby Hey Point wharf. The Urquhart bauxite resource totals 9.5Mt (mostly Measured and Indicated) grading 52.8% Al 2 O 3 or 40.7% available Al 2 O 3, and 13.7% SiO 2 or 5.3% reactive SiO 2. Included in this is an ore reserve of 6.5Mt and a total production target of 10.3Mt, derived from a preliminary feasibility study (PFS) completed in December This assumed shipments over an 8 year period, being 0.5Mt in 2017, 1.0Mt in2018 and 1.5Mt from 2019 onward, destined for the Chinese low temperature metallurgical market. Life of mine (LOM) capital costs were put at $3.1m, while operating costs including 10% State royalties were estimated at $31.67/t on an FOB basis. From prices CIF China, less shipping costs, translated to AUD, the PFS calculated an average received price of $40.49, giving rise to EBITDA of some $9/t. LOM revenue was calculated at $417m, EBITDA at $91m and NPV $87m pre-tax. Missing from the publicly released information were the key assumptions on prices CIF China, shipping costs and the A$. If they used an A$ of 75 and a shipping cost of US$8/t, for example, then that would imply an assumed CIF China price of some US$38/t. MLM holds tenements containing the potential for very large bauxite resources both south and north of Weipa. Its long term ambition is to establish the capacity to produce 5-7Mtpa on a sustainable basis. Other interests held by MLM comprise: The adjacent Urquhart Point mineral sand project, included in the same joint venture with Ozore Pty Ltd. The project is mining ready but on hold, awaiting higher prices. A purposebuilt modular process plant is currently stored near Brisbane. The ore reserve is 1.1Mt grading 9.5% HM and 1.0% slimes within a resource of about twice the size. The HM assemblage is zircon 11.7%, rutile 13.6% and ilmenite 13.1%. The Esmeralda graphite exploration project near Croydon in North QLD, where the deposits are associated with granites and volcanics. This type of deposit is rare and confined mainly to Sri Lanka, where the graphite is of very high grade (>90%C). So there was some excitement prior to Esmeralda being drilled but alas, the grades so far encountered have been in the 6-8% range. Still, the tonnage potential is very large, probably more than 100Mt on my reading, so MLM is persevering. 3

4 The Sconi scandium, cobalt and nickel project (once knowns as the Greenvale nickel project) NW of Townsville QLD. Now farmed out to Australian Mines Ltd (ASX:AUZ) which can earn a 50% interest after completing a Definitive feasibility study (DFS) and a further 25% after arranging finance for an operation. Resources are 89Mt of 0.58% Ni, 0.06% Co and 48 g/t Sc at a cut-off grade of 0.7% Ni equivalent. AUZ is focused mainly on the scandium potential noting there are some deposits within the resource base that have much higher Sc grades than the average. The Cape Flattery silica sands project 200km north of Cairns QLD. Mitsubishi operates the world s largest silica sand operation in the adjacent tenement. MLM is evaluating the development potential. Some years ago MLM had a portfolio of listed investments which arose from floating certain interests on the ASX. This included MetroCoal (now named Metro Mining) and Cape Alumina (acquired by Metro Mining). These investments have since been sold to fund MLM s own activities. The company should probably have stuck with them. Chinese-controlled company Jien Mining Pty Ltd is the only substantial shareholder with 17.6%. Jien Mining is controlled by Jien Nickel Industry Co. Ltd listed on the Shanghai stock exchange. Metro Mining Ltd (ASX: MMI) Price 16.5, mkt cap $98m, cash $11.5m, debt $49.5m Directors: Stephen Everett (NE Chm), Simon Finnis (MD), Mark Sawyer, Dongping Wang. Jijun Liu, etc Substantial shareholders: Greenstone Mgt 18.0%, Balanced Property 12.4%, Dadi Engineering 10.7%, Joyday 7.8%. MMI s Bauxite Hill project is located 98km north of Weipa on Cape York QLD. Ore reserves are 96.5Mt of direct shipping ore (DSO) with available Al 2 O 3 of 39.4% and reactive SiO 2 of 6.3%. There is significant potential to add to these reserves. An BFS is nearing completion for a project of perhaps 6Mtpa and preliminary indications are that it will cost $30-35m and incur cash operating costs of $16-17/t prior to the State royalty of 10%. I would imagine the project could start at 2Mtpa and increase to 6Mtpa over time, depending on bauxite demand. A 4 year offtake agreement is held with China s Xinfa Group for 1Mt in the first year and 2Mtpa thereafter, and I would think that at least one more such agreement would be desired before proceeding. The schedule is for the BFS to be completed in March, environmental approval to be granted in June, construction to begin in the Sep Q 2017 and first production in the Jun Q 2018 after the wet season. An earlier PFS based on a smaller 4Mtpa project with capital costs $5-10m higher and operating costs 5-10% higher, based on a bauxite price of US$38-45/t and an A$ of 75, had an IRR of 156% and a NPV 15 of $440m post tax. 4

5 Queensland Bauxite Ltd (ASX:QBL) Price 0.8, mkt cap $10m, cash $6.7m, debt nil Directors: Pnina Feldman, Sholom Feldman, Myer Gutnick, David Austen Substantial shareholders: First State Pty Ltd 19.4%, Volcan Australia Corporation Pty Ltd 15.7% QBL owns the South Johnstone bauxite project located 20km west of Port Mourilyan in North QLD. There is an initial indicated resource of 1.9Mt grading 29.7% available Al 2 O 3 and 3.2% reactive SiO 2. The exploration target is put at some Mt. A scoping study conducted in 2014 concluded that a 800,000 tpa project would cost $5.1m and operating costs would be $21/t FOB excluding the State royalty of 10%. The company is awaiting grant of an Environmental Authority Licence (EAL) and also a Minerals Development Licence (MDL) before sending a trial shipment of 50,000t to a refinery in Malaysia. In addition to South Johnstone the company owns 81% of a bauxite tenement near Inverell, NSW. Other projects are being considered. I should add that: The board are mostly related to each other. The company s announcements are a convoluted mish-mash. No real progress has been made for some years. Disclaimer This analysis is cursory in nature and is not intended to be relied upon by third parties, who should make their own enquiries. The report does not does not contain investment advice. Any views expressed in this report are purely my own unless otherwise indicated. Disclosure An associated entity held small positions in MLM and MMI at the time of writing. 12 February 2017, Graeme Newing 5