The changing landscape of the bauxite market means ASX-listed small caps can now be just as competitive, possibly even more so, than their much larger counterparts.

Bauxite isn’t exactly a “sexy” commodity and it’s definitely not scarce, but not every project in the pipeline is going to make it into production and there is a rapidly growing demand for good quality bauxite.

Bauxite is the only raw material used in the commercial production of alumina, which can then be turned into aluminium metal.

To make one tonne of aluminium, it requires about five tonnes of dried bauxite.

The biggest change in market dynamics over the past 10-15 years, according to the head of one small cap bauxite explorer, is its shift away from being a “vertically integrated” market.

Vertically integrated means refiners would come along and park themselves right next to a bauxite deposit and control everything in the supply chain from mining the bauxite through to refining it into aluminium and selling it — making bauxite simply a high cost “input” into the refinery.

But Lindian Resources (ASX:LIN) managing director Shannon Green told Stockhead that in the last 10 to 15 years there’s been quite a “big shift away” from that traditional vertically integrated model to a model where refining centres are being built away from bauxite deposits in lower cost jurisdictions like China.

“So now the economics are such that the bauxite is now being shipped to lower cost refineries and those traditional higher cost refineries are starting to shut down,” Green said.

“Now you’re starting to see bauxite become a DSO [direct shipping ore] product traded and shipped across the globe and a lot of that is going to China.”

DSO refers to minerals that require only simple crushing before they are exported, which keeps costs low.

“So it’s a really interesting change in the market that’s then enabling companies like ourselves with bauxite projects to actually have a place in the market,” Green said.


China demands more bauxite

Market forecaster Roskill says Chinese demand for bauxite will continue to grow over the next decade, led by use of alumina in refractories and flame retardants.

“At the same time, however, strengthening environmental restrictions on mining are combining with a declining reserve base (particularly for higher grades) to ensure a steady increase in Chinese imports,” Roskill said.

“Imports increased to represent 42 per cent of Chinese demand in 2018 and will continue to rise to 2029, taking material out of the rest-of-world supply chain.

“The Chinese government still considers environmental improvement a priority across all industrial sectors and further rounds of plant inspections and closures are expected in the coming years.”

According to independent consultant CM Group, Chinese demand for bauxite will increase by 65-70 million tonnes a year over the next five to seven years, thanks to new alumina refining capacity being built, and about 60 per cent of that new demand will need to be met by imported bauxite.

ASX-listed explorer Pacific Bauxite (ASX:PBX) says that existing bauxite supplies together with planned developments are only expected to satisfy global demands until 2020.

But beyond that the market is expected to go into a supply deficit of more than 25 million tonnes by 2025, and over 50 million tonnes by 2030.

The reason for the rapidly rising demand is that car makers, including electric car makers, want to make their vehicles lighter and faster.

The big plane makers also need lightweight aluminium materials, with Boeing and Airbus forecast to make 38,000 new planes over the next decade.

And Guinea is starting to become China’s “go-to” for its bauxite because of the country’s abundance of high-grade resources.

In 2018, Guinea produced 60 million tonnes of bauxite. That is forecast to grow to 74 million tonnes this year and 160 million tonnes per annum by 2025 – which will account for over 42 per cent of global production.

Guinea accounts for about 40 per cent of global bauxite reserves and it has the world’s largest bauxite resources with over 40 billion tonnes.


How good is your bauxite?

The key things refiners look for when sourcing their bauxite is the total alumina (the in-the-ground grade) and the available alumina (what can actually be recovered).

The amount of bauxite that can be recovered is determined by the level of boehmite and reactive silica – the less you have, the higher the recoveries.

“So those two elements control how much of the total alumina is available to a refiner,” Green explained.

“And once they get to a certain level, then either you have significant loss and therefore your product value isn’t there, or it can go into a high temperature refinery but of course the cost of that is much higher and therefore the value of your product is much lower as a consequence.”

But Guinea has very good total alumina grades of between 45 and 49 per cent and with very low boehmite and reactive silica.

“Therefore it’s a product that is being well sought after by refineries globally, which is why so much production has ramped up,” Green said.

By comparison, Australia’s bauxite ranges from around 30 per cent alumina in the south of the country and up to 50 per cent, but with very high silica, in the north.

But there’s still definitely a market for high-grade Aussie product, as evidenced by Rio Tinto’s (ASX:RIO) completion of the $2.7 billion Amrun bauxite mine on Queensland’s Cape York Peninsula earlier this year.

The new mine replaces production from the depleting East Weipa mine and will increase annual bauxite export capacity by around 10 million tonnes.


The players

Right now, there aren’t too many ASX-listed companies with bauxite projects. And there are even less with projects in Africa.

Rio of course has projects all over the globe, including a 22.95 per cent stake in the Sangaredi bauxite mine in Guinea, which produces around 14 million tonnes each year.

Lindian also just picked itself up a project in Guinea which adjoins two large mining projects — Rio’s Sangaredi mine and Alliance Mining Commodities’ Koumbia mine.

The company also has bauxite mines in Tanzania, but its immediate focus is its new Gaoual mine in Guinea.

Lindian’s plan is to undertake a maiden drilling program to deliver an initial resource by the end of Q2 2020.

“If that resource looks like what we believe the potential of it is then we will have a project of global significance on our hands,” Green said.

“We believe that we will have a grade that will be unmatched in the market, not by just one or two points, we’re talking something that is going to be high-50s, not the high-40s, with very low boehmite.”

Tolga Kumova-backed Canyon Resources (ASX:CAY) also has a project in Africa – the Minim Martap project in Cameroon.

Earlier in July, the company reported that drilling delivered multiple hits of over 50 per cent aluminium oxide, with grades up to 56.76 per cent.

Pacific Bauxite, meanwhile, has bauxite projects in the Solomon Islands and Western Australia.

Metro Mining (ASX:MMI) is already producing from its flagship Bauxite Hills mine 95km north of Weipa on Western Cape York in Queensland.

Metallica Minerals (ASX:MLM) is trying to bring its Urquhart bauxite project in Queensland into production, but has had to work through some issues with its joint venture partner, which has resulted in delays to first production.

And Australian Bauxite (ASX:ABX) started production from its Bald Hill mine in Tasmania in December 2014.

The company has been selling into the cement and fertiliser industries, with its most recent sale amounting to 30,000 tonnes of bauxite.

The Bald Hill mine was the first new bauxite project in Australia in more than 35 years when it came into operation.