Barry FitzGerald: Why Tolga Kumova reckons Canyon can repeat Syrah’s success
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Tolga Kumova’s key investment principle is to seek out junior companies with likely world-class assets under their belt which, for one reason or another, have been overlooked by the market.
“Buying little companies that have Tier 1 assets is how you make big money because eventually they will get valued properly by the market,’’ the bustling mining investor told Garimpeiro.
It was certainly a winning strategy for Kumova in 2010-11 when he invested in Syrah Resources (SYR) after he and a geologist mate visited its Balama graphite prospect in Mozambique.
They came away convinced it was a world-class deposit, and it is.
Kumova has since moved on from Syrah and the company has some challenges to overcome to get the since developed Balama humming. But what was a $10m company back in 2010-11 is nevertheless a $360m company today.
Kumova reckons Canyon Resources (ASX: CAY), which owns the Minim Martap bauxite project in Cameroon, has the makings of a repeat performance. It currently trades at 20c for a market cap of about $80m.
Canyon’s current $80m market cap is a strong clue that Minim Martap does have the makings of becoming a world-class bauxite export operation.
It comes with a 550mt stock exchange compliant resource estimate of high-grade and low contaminant bauxite within which there is a particularly high-grade (50.8% aluminium oxide) component of 250mt.
The scale of the resource suggests that when Canyon launches into a feasibility study, it will likely be scoping a 10mtpa development. Assuming mining, transport and shipping costs of about $US45/t, and a premium selling price of $US65-$US75/t, a 10mtpa operation would be a nice earner for the $80m company.
But it has to be said that Canyon wouldn’t have a project at all if there wasn’t an existing rail line that runs close by Minim Martap and all the way down to the old port of Doula, a distance of some 560km as the crow flies.
Even then, Doula is a shallow water port and would not be capable of handling the big ships needed to support a bulk export project like Minim Martap.
Fortunately, a new deepwater port was built in recent years at Kribi. And for the sake of a 130km rail link connecting the new port to the existing Minim Martap (Ngaoundere)-Doula line, Canyon would have its logistics challenge licked.
The company hasn’t said so but there has been sub-Saharan news reports that the 130km “missing link’’ is being actively pursued by the government, with the help of the World Bank, to open up Cameroon’s export potential.
Unlike many of its African neighbours, Cameroon does not have a mining industry, apart from small gold scratchings undertaken by Garimpeiro’s African cousins.
It would not be lost on the government that Guinea has become a massive bauxite producer, with heavy recent investment by Chinese aluminium groups seeking a high-grade alternative to China’s low-grade domestic supplies.
Minim Martap has the same high grade and low contaminant bauxite as found in the best of the projects in Guinea.
Proving up the rail solution for the project will be the big breakout moment for the stock. Knowing when – and if – that happens is why Canyon is currently being held back by the market at 20c a share.
In the meantime, the quality and scale of the resource would no doubt have triggered the interest of the big players in the bauxite/alumina/aluminium industry from China, the Middle East and elsewhere.
Any hint that a rail solution is close at hand, and they could pounce on Canyon because deposits like Minim Martap don’t come along very often.