Special report: A recent strike at a bauxite mine in Guinea cut as much as 1.2 million tonnes from the global market, further constraining supply at a time when demand its growing strongly.

The industrial action is not a one-off. Miners in the West African country often face staff walkouts and protests because they believe the wealth from Guinea’s mineral discoveries is not being fairly distributed, according to recent media reports.

It’s the second incident in Guinea so far this year following a violent protest in March that halted bauxite shipments.

Bauxite is the key ingredient in alumina and aluminium.

China has been increasingly looking to major bauxite producing countries like Guinea to shore up supply as its domestic supplies fall.

Industry commentators forecast strong demand for bauxite coming from China in particular, because of the country’s crackdown on illegal and environmentally damaging operations, as well as a decline in domestic grade bauxite.

That’s an opportunity for ASX-listed companies such as Metallica Mining (ASX:MLM), which is on the cusp of becoming a bauxite producer.

“Bauxite is going to grow volumes substantially over the next 10 years,” UBS commodities strategist Daniel Morgan said.

“I think that’s a big opportunity.”

China sources half its bauxite from domestic sources and imports the rest. The country increased its bauxite imports by over 32 per cent last year.

The Shanxi, Henan and Guangxi provinces are all looking to import bauxite for the first time.

The Asian powerhouse is currently trying to strike a $10 billion deal to mine bauxite in Ghana, but is facing environmental pushback over where it wants to mine – a forest reserve in Ghana’s east.

Countries like Kazakhstan, Tajikistan, Bahrain, India and Indonesia are also all looking to ramp up alumina and/or aluminium production.

Meanwhile, Malaysia is trying to crackdown on corruption among its bauxite miners – a move that saw exports to China drop from 2.3 million tonnes to 1.3 million tonnes last year.

It takes around five to 10 years to bring a new discovery into production, so companies like Metallica Mining are set to benefit.

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 federal 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.

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.

They are waiting on final government approvals and expect to make their maiden shipment this year.

 

This special report is brought to you by Metallica Minerals.

This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice.

If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.

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