Barry FitzGerald. Pic: Supplied/Stockhead
Experts
Bauxite is somewhat of a boutique offering on the ASX as pure exposure to the aluminium raw material through listed companies is limited.
Rio Tinto, Alcoa and South32 are the biggest producers of the stuff on the ASX but if it is pure exposure the punter wants, they have to go further down the market cap ranks.
As it is, it is a good time to take a look at what is on offer as prices for bauxite from the two major exporting nations – Guinea in West Africa and Australia – have just hit record levels of $US80/t and $US64.50/t, respectively.
So its happy days for the companies on the ASX with bauxite exposure. But first some background on what is going on with bauxite and its end product sisters of alumina and aluminium.
It takes 4-5t of bauxite to make the 2t of alumina needed to produce 1t of aluminium. So what is happening in the bauxite market ends up having an impact on prices for alumina and aluminium.
While aluminium is nice and strong at $US2,558/t – it compares with the June half average of $US2,358/t – there is nothing special about the price at the moment.
Prices for bauxite and alumina on the other hand have been going gangbusters. Alumina too is at record levels of $US677/t in the market that matters most when it comes to all things aluminium – China.
A 10-year average for alumina is about $US330/t and it usually trades at 15-17% of the aluminium price which would currently equate to about $US385/t. But here we are and its approaching $US700/t.
Whether the rising cost of bauxite and alumina rubs off on aluminium in a meaningful way remains to be seen. It is likely it will.
As for the recent take-off in bauxite and alumina, it’s all about supply side issues. Guinea supplies about 70% of China’s alumina refinery needs and it recently spooked the market by putting a customs block on a big producer/exporter.
While a customs block was the stated reason for halting the producer’s exports, there is no doubt that Guinea is on a warpath to extract greater value from its bauxite industry, including a push to have its own value-added alumina industry.
The situation in Guinea raises security of supply issues for the mammoth Chinese aluminium industry and comes at a time when China’s domestic bauxite production is under pressure from falling grades, weather impacts and environmental performance audits by regulators it does not pay to mess with.
Taking a look at alumina, the key factors at play are the shortage of Chinese domestic bauxite and strong demand from the nation’s fleet of aluminium smelters. Supply issues from Rio’s operations in Queensland on gas shortages have not helped.
As said at the start, Garimpeiro’s interest today is in pure bauxite players on the ASX. There is not many of them. Here are three that have got a lot more interesting in recent weeks because of the bauxite-alumina dynamic.
It is the only pure/independent bauxite producer on the ASX and was trading mid-week at 5c for a market cap for a market cap of $297m.
Talk about exquisite timing – the company it starting to reap the benefits of an expansion in production to 7mtpa of bauxite on the completion of a ramp up at its Bauxite Hills operation north of Weipa on Cape York Peninsula.
Analysts at Shaw and Partners like this none, placing a 12-month price target on the stock of 14c a share. The broker has net profit after tax rising to $95m in FY25 and $122m FY26 which is interesting given the group’s current market cap.
It is only days away from starting a maiden drilling program at its Niagara bauxite project in Guinea. The stock was trading mid-week at 0.2c a share for a market cap of $25m.
It is an advanced project thanks to previous drilling by Brazil’s Vale and others in the past, with Arrow setting an exploration target for the project of 170-340Mt of bauxite.
As it is, Arrow already has a presence in Guinea with its North Simandou iron ore project along strike from the $US26 billion Simandou iron ore project being built by Rio Tinto and Chinese interests.
Guinea has insisted that Simandou be developed with an open-access rail and port which the state will also have an equity interest in.
Neatly for Arrow, the new export infrastructure could give it a route to markets for North Simandou as well as Niagara. But first the maiden drilling program to confirm Niagara’s status as a large-scale development opportunity.
A fresh Aussie face in the Chinese dominated bauxite industry in the country is likely to be well received.
Trading mid-week at 12c for a market cap of $169m. This one has been a strong performer since receiving a mining licence for its Minim Martap bauxite project in Cameroon in mid-September.
Minim Martap is one of the biggest undeveloped bauxite deposits around, sporting a resource estimate of 1.02 billion tonnes grading 45.3% aluminium oxide and an ore reserve of 108Mt grading a an impressive 51.1%.
The company is updating a June 2022 feasibility study as well securing rail and port agreements while advancing discussions with offtake and funding partners. A new supply source outside of Guinea is likely to be well supported.
At Stockhead, we tell it like it is. While Evelate Uranium and Koba Resources are Stockhead advertisers, they did not sponsor this article.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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