China wants more bauxite as Metallica closes in on production
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Chinese demand for bauxite is ramping up as Metallica Minerals prepares to become Australia’s newest producer.
The Asian giant’s crackdown on illegal and environmentally damaging operations, as well as a decline in domestic grade bauxite, is opening new markets.
The Shanxi, Henan and Guangxi provinces are all looking to import bauxite for the first time.
Bauxite is the main source of aluminium, a market which has been consistently on the rise since late 2015.
The increased regulation in China is expected to reduce the country’s bauxite production and drive an increase in imports.
It takes around five to 10 years to bring a new discovery into production, but Metallica (ASX:MLM) is now on the cusp of becoming a bauxite producer after little more than three years of hard work.
In a 50-50 joint venture with a private Chinese company, Metallica is developing the Urquhart bauxite deposit, which was discovered in late 2014 on the Cape York Peninsula in far north Queensland.
The last 12 months have been transformational for the Urquhart project — a mine Metallica is planning to open for less than $2 million.
After receiving the mining lease in January, Metallica is now only waiting on approval to construct a haul road from the project site to the nearby port of Hey Point.
Once it has the haul road approval in hand it will take just four to six weeks to bring Urquhart into production.
“Basically, we just need to mobilise equipment and we’re good to go,” chief executive Simon Slesarewich said. “All we need to do is construct a haul road linking the mine to the existing port infrastructure.”
By comparison to other countries, Australia’s bauxite production costs are very competitive, and much lower than other major bauxite-producing countries, such as China, Guinea and
Indonesia, according to the Australian government.
On average, production costs in Australia are 13 per cent lower than Guinea, 32 per cent lower than Indonesia and 38 per cent lower than China.
The pre-feasibility study, completed in late 2016, estimated the joint venture partners would require just $1.1 million in working capital to bring the project into production using a model that transfers risk and capital responsibility to contractors.
Over the initial 5.5 years, Urquhart would produce 6.5 million tonnes of saleable bauxite for almost $300 million in revenue and clear cash flow from the first tonne of production. The instantaneous cash flow will result in a payback period of just five months.
Metallica is taking a customer first approach by holding off on inking an offtake deal until has a detailed knowledge of when it can load its first shipment. The company believes this will assist in it growing a long term relationship with its customers.
The company has also indicated it is assessing other bauxite projects around the world that would complement Urquhart and allow it to develop into a more significant bauxite producer.
This special report is brought to you by Metallica Minerals.
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