Bauxite On Metallica’s Playlist

By Barry Fitzgerald | More Articles by Barry Fitzgerald

Rio Tinto is not spending $US1.9 billion on developing its Amrun bauxite project south of Weipa on Cape York Peninsula on a wing and prayer.

Due to start production in the first half of 2019, Amrun’s planned annual output of 22.8 million tonnes will both augment Rio’s existing Weipa operation, as well as allow a step-up in exports of the alumina/aluminium raw material to China.

The stepped-up export opportunity comes from the hand-over-fist growth in China’s aluminium industry, and the demands it is making on China’s domestic supplies of bauxite. Around 2021/2022, forecasters reckon supplies of bauxite feeding China’s domestic refineries will be pretty much depleted.

That feeds into expectations that China’s annual bauxite imports – which have come from next to nothing a handful of years ago to 52 million tonnes a year – are headed off to as much as 120mtpa by 2025.

That sort of growth opportunity is pretty unique in the bulk commodities space – and with Rio tipping internal rates of return of more than 20% for Amrun, it is a pretty enticing one. Competition to fill the forecast growth is keen though, with places like Guinea, Malaysia and Indonesia jostling for a share of the upside.

Despite the best efforts of Canberra and state governments to erode confidence in Australia as a reliable and cost competitive supplier of commodities, the country still has definite advantages over the three countries mentioned above.

The two key advantages are around sovereign risk and proximity to China, the biggest and fastest growing market for key commodity exports, including bauxite.

All of that is by way of background to this week’s interest in Metallica Minerals (MLM), which is about to become Australia’s newest bulk commodity exporter from its Urquhart bauxite project, the tenements of which butt up to Rio’s Amrun.

Urquhart is no Amrun. But it doesn’t have to be either given Metallica’s modest market capitalisation of $16 million (5.7c a share).

Once the mining licence for Urquhart is secured, expected this quarter, Metallica will sign off on Chinese off-take deals and get down to exporting 1.5 million tonnes a year from the privately owned Hey Point, all of 15km away

Plus, Kairos adds a cobalt leg in an emerging area just south of Breaker Resources’ world-class gold discover. Read more +.

Barry Fitzgerald

About Barry Fitzgerald

Barry Fitzgerald has covered the resources industry for 30 years. His column highlights the issues, opportunities and challenges for small and mid-cap resources stocks - most recently penned his column for The Australian newspaper and before that, The Age.

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