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Best small-cap bauxite companies on the ASX - Canyon Resources and Metro Mining: Samso

Samso seeks to help clients with business development and public investor/relation needs. Samso has over 30 years of experience in developing business ideas and concepts in the Australasian region.

Bauxite in hands
Bauxite from Metro Mining’s Bauxite Hills project in Far North Queensland

From Samso

‘The best small-cap bauxite companies on the ASX – Canyon Resources Ltd (ASX:CAY) and Metro Mining Ltd (ASX:MMI)’ is a continuation from my first bauxite article titled ‘Bauxite – The next commodity rush?’. I hope the first article will shed some light into the following piece.

Bauxite companies that swim in the small-cap sector are hard to find.  Bauxite is a commodity that seems to be reserved for bigger players around the world, what we call Tier 1 players. 

Take the two bauxite provinces in Australia. The Darling Range is Alcoa Corp (NYSE:AA) and Worsley and the other in Weipa is all about Rio Tinto plc (LON:RIO).

Personally, bauxite is one of the most straightforward commodities to evaluate.  It’s just a bulk commodity and controlled by size and chemistry.  As usual, many will argue that it is not that simple. If I want to be honest, I agree, but for this purpose of a desktop evaluation, I will say that it is simple.

Metro Mining Ltd (ASX:MMI)

According to the Metro Mining Ltd website, the company was established in 2014 and is a company focused on the Bauxite Hills deposit. The project is 95 kilometres north of Weipa on Western Cape York with a total tenement holding of 1,900 square kilometres.

The Bauxite Hills Mine has a total resource of 144.8 million tonnes.

Mining began in April 2018 and produced approximately 2 million tonnes to China and was announced on December 31, 2018.

Metro Mining Limited Project Location. (Source: Metro Mining Limited)

Mining ceased in December 2018 due to the wet season and will be commenced again in April 2019. An update for the new activities was issued on February 28, 2019.

Capital Structure

Market Capitalisation:  $187 million (03/2019)

Outstanding Shares:  1,362 million (06/2018)

Top 20 Shareholding:  76.50% (2018)

Metro Mining Limited (ASX: MMI) 5 Year Chart. (Source: Commsec)

Flagship project

Metro Mining’s flagship project, the Bauxite Hills Mine, is 95 kilometres north of Weipa on Western Cape York where the company holds a total tenement package covering approximately 1,900 square kilometres.

The Bauxite Hills Mine, alone, has an estimated ore reserve of 92.2 million tonnes and total resources of 144.8 million tonnes.

 

Bauxite Hills Deposits. (Source: Metro Mining Limited)

The deposit type is lateritic bauxite derived from the weathering of aluminous sediments in a tropical to sub-tropical environment. The mineralisation within the Bauxite Hills Mine forms part of the Weipa Plateau, a widespread area of aluminous laterite on the west coast of Cape York Peninsula that includes Rio Tinto Alcan’s Weipa, Andoom and Amrun bauxite deposits as well as Metro Mining’s Bauxite Hills Mine.

The bauxite deposits in the project area generally consist of a single flat-lying pisolitic bauxite layer, generally 0.5–3 metres thick that is underlain by a kaolin horizon. Within the area of the resources the average bauxite thickness is 1. 6 metres.

The bauxite deposits are overlain by lateritic overburden and topsoil. Under the bauxite deposits there is often a ferruginous cemented layer and a kaolin clay layer. Kaolin, sandy clays and minor quartz sand deposits occur beneath the bauxite layer and extend beyond the bauxite areas.

The geological model is grade-based using a cut-off of ≤15% total SiO2 and ≥45% Al2O3 for the BH1 resource area, a cut-off of ≤8% reactive SiO2 (at 1500C) and ≥45% Al2O3 for the BH2 area and a cut-off of ≤20% total SiO2 and ≥45% Al2O3 for the combined BH6 and Gulf (Skardon) resource area. (Source: Metro Mining Limited)

Mining operations commenced in April 2018. In its first year of operations, Metro achieved its 2018 production guidance shipping 2 million tonnes to five different Chinese companies.

Metro Mining Bauxite Hills Mine site (Source: Metro Mining)

The company has announced an expanded 2019 calendar year production from 3.0 million to 3.5 million tonnes per annum.

Metro has also commenced a DFS for potential Stage 2 Expansion of Annual Production to 6.0 million tonnes by 2021.

Metro is also further exploring its tenement holdings on Cape York, initially focusing on near mine opportunities for Bauxite Hills.

The Bauxite Hills Mine employs up to 220 people with an indigenous workforce of approximately 37%. Around 90 people on site at any one time.

Simple mining operation:

• Mining operations are undertaken only in the dry season, which is notionally eight months from April to November.

• Free-dig bauxite is mined by front-end loaders, trucked to a port infrastructure area, screened to a max product size of 100mm and fed onto the Barge Loading Facility and into barges.

• Barges are towed down the Skardon River to an anchorage point at sea where the bauxite is transhipped to freight vessels.

Canyon Resources (ASX:CAY)

Canyon Resources is developing the Minim Martap project, which is in the Adamawa region of Cameroon alongside the company’s other asset, Birsok Bauxite Project.

The Minim Martap project includes two projects, the Ngouadal and Minim Martap deposits, which are within 25 kilometres of each other. The total area of the permits is 1,349 square kilometres.

Capital Structure

Market Capitalisation:  $90 million

Outstanding Shares: 315.4 million  (06/2018)

Top 20 Shareholding: 33.50% (2018)

Canyon Resources Limited (ASX: CAY) 5 Year Chart. (Source: Commsec)

Minim Martap project

What I like about the project is the size. The ones in Australia that are owned by small players do not have the size. The grade is high but short of the 50% mark that is common in these tropical deposits. These deposits are refractory and usually require high temperature to treat them.

Chemically, bauxite deposits are complex and different deposits will have their issues. 

The size present with Canyon is impressive, and I am sure they have an excellent chance to extend their resource. What I am not sure about is the typical sovereign issues that seem to muddy all projects from Africa.

Canyon Resources project location, rail and port facilities. (Source: Canyon Resources)

However, in defence of the potential sovereign risk issues,  I have a few associates tell me that those issues are not as bad as reported.  In some degree, I have to agree as there are indeed many projects that are doing well in places such as Africa and Asia where you would think that these sovereign issues will be a deal breaker.

Conclusion

There is a lack of small-cap bauxite players and the reason, I believe, is the bulk nature of deposits and the lack of a market price. The lack of a spot market price can be hazardous for small players, especially when they don’t have a large deposit.

The other issue is that the value-adding occurs when you turn it into alumina and if you are not blessed with a significant resource and an excellent grade, you are going to have a problem.

The fact that bauxite is a product of chemical weathering and you are in a tropical climate (rare to be in an arid environment), you need a geological condition to retain and subsequently capture the end product.  If you do not have a “geological collection point”, you are not going to get a large deposit.

With limited competition, if these two companies get their cash flow happening, they are going to be very interesting.  There is no argument that the Chinese market will improve and demand will surge.

I think these two companies will take time to get their act together and like many small-cap companies, the liquidity of their cash position will determine how long they hang around.

Canyon has decent looking chemistry with their resource.  Their silica content is very low as the industry is buying up to 8% silica.

I am not clear on the chemistry for Metro, but I would assume that Weipa will be reasonably consistent.  What I do know about the Weipa bauxite is the requirement of high-temperature refining. I am guessing the refractory nature causes the same problem as what you get in refractory gold issues. The Weipa grade is good. However, I think they need to get the tonnages up.

About Samso

Samso is primarily a consulting company that delivers digital information to the market in terms of creating organic content.

Samso provides bespoke research and presentation for clients to engage their customers or investors. Bespoke research is useful for clients who require a two-way flow of communication with their customer/investor base by utilising a social media strategy.

Organic content allows audiences to feel a real sense of sincerity when you share your business strategy, allowing your business to stand out among the sea of social media traffic.

Samso has nearly 30 years of experience in developing business ideas and concepts in the Australasian region. Samso has worked primarily in the mineral resources industry, capital markets and corporate finance. Noel Ong is the founder of SAMSO.

www.samso.com.au

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