Bauxite Resources (ASX:BAU) has delivered a larger bauxite resource and higher low temperature alumina levels at low reactive silica levels from a resource upgrade at its Fortuna deposit in the Darling Range, Western Australia.
The upgrade could ultimately see BRL produce a DSO product after upgrading took the resource to 40.2 million tonnes at 31.2% low temperature available AI2O3 and 1.8% reactive silica (5.6% total).
This compares with its previous estimate of 39.5Mt at 28.8% available alumina.
The wholly-owned Fortuna deposit includes an Indicated Resource of 6.3Mt at 34% available alumina. This is near surface and situated close to existing road and rail infrastructure.
The current update has resulted from the analysis of 3,395 samples, which were originally assayed using Fourier Transform Infra Red (FTIR).
The low temperature BOMB digest analysis improves the quality of the data used in the estimate.
BRL chief executive officer Peter Canterbury said: "The upgrade of the Fortuna resource is a material improvement in the low temperature digestion available alumina content of the Fortuna deposit.
"It allows the company to target this product as a genuine DSO without the need for any beneficiation, unlike several of our Australian competitors.
"We have a deposit which is easy to mine, requiring no beneficiation, located close to existing rail and port infrastructure. This offers a low CAPEX start-up opportunity.
"The company is now engaging engineering consultants to scope out the project from mine to port.
"The deposit is differentiated from its peers by its location, its predominantly gibbsitic bauxite form and its low reactive silica qualities which are the key reasons why Darling Range alumina refineries are among the most cost competitive in the world.
"The resource upgrade combined with a strengthening outlook for both the short and long term bauxite market improves the project economics."
Both the resource upgrade and strengthening bauxite markets should improve project economics.
Fortuna Bauxite Deposit
Fortuna is located on two private landholdings located 60 kilometres northeast of Perth and 15 kilometres of existing rail infrastructure.
This railway is linked to the Kwinana port 120 kilometres away as well as the Bunbury Port approximately 250 kilometres away.
The resource is not constrained and a number of neighbouring properties within the exploration tenement have been identified as being prospective to expand the existing resource base.
It is near surface and therefore easy to mine while requiring no beneficiation.
Taken together, this offers Bauxite Resources a potential low capital expenditure start-up opportunity.
Fortuna is differentiated from its peers by:
- its location,
- its predominantly gibbsitic bauxite form and
- its low reactive silica qualities.
Combining it can be seen why Darling Range alumina refineries are among the most cost competitive in the world.
In addition, an initial environmental constraints study at Fortuna identified few constraints for mining development. Level 2 baseline studies are planned for spring 2014.
The company and its joint venture partners maintain a large 380Mt Resource basin in a proven bauxite mining region.
Forward Work Plan
Bauxite Resources has this week awarded the Fortuna Concept Study to AMC Consultants.
This will cover the geology, mining, processing, infrastructure and economics of the Fortuna Bauxite Project based on a DSO operation.
The study will examine the viability of an operating rate in the range of 2-4 million tonnes per annum.
In parallel, the company has engaged Bauxite Alumina Consulting Service to undertake a technical bauxite market evaluation of the Fortuna bauxite.
Bauxite Market Update
Demand for bauxite is expected to increase since the Indonesia Government confirmed in January 2014 that a ban on exports of unprocessed ore including bauxite from the country would remain.
It is estimated that about 42 million tonnes of bauxite was exported last year from Indonesia to China.
Combined with other imports, China has built up an estimated 12 month stockpile of required bauxite imports.
According to "The CBIX Bauxite Index", China's imports of bauxite reached 1.58Mt in April 2014, down 76.59% year on year.
During the first four months of the year, bauxite imports totalled 14.47Mt, down 29.92% year on year.
No Indonesian bauxite imports have been reported since April and imports of Australian bauxite dropped 23.43% year on year to 1.02Mt in April.
It is expected that China's bauxite import inventory will continue to shrink during the June quarter of 2014, and imports of non-Indonesian bauxite will increase.
Once these stockpiles are exhausted, it is expected that China will require several new significant sources of imported bauxite to satisfy demand out of China. This anticipated rise in demand has led to an increase in bauxite prices over the past few weeks.
According to CRU forecasts, longer term bauxite demand from China is anticipated to reach 95 million tonnes by 2022, representing a two and a half fold increase from the 38 million tonnes imported into China in 2012.
CRU is also forecasting that the global bauxite market is in the midst of a structural change which will see a sizable number of new entrants into the market in the next decade, in the form of junior miners.
According to CRU Australia is expected to dominate the group in bauxite exports and officially become the largest exporter of bauxite to China.
The upgrade in Fortuna resource continues the momentum building for BRL. This week it announced a $0.04 per share capital return to shareholders from its hefty $42.1 million cash reserves (as at 31 March 2014).
The location of the Fortuna deposit could likely see a low capital cost operation and nearer term start-up of direct shipment export of bauxite from the Darling Ranges to take advantage of the increase in demand for Australian bauxite after the Indonesian ban on raw mineral exports.
With the bauxite price ticking up nicely, a strengthening outlook for both the short and long term bauxite market should further improve the project economics.
The ability to market a genuine DSO product and with its low reactive silica qualities without the need for any beneficiation should ensure that any bauxite produced from Fortuna is in strong demand from refineries.
This provides an opportunity for Australian bauxite companies like BRL to tap this demand and benefit as part of a strongly endowed bauxite region.
This is a very good time indeed to be a cashed up bauxite company like BRL, with project locations in the Darling Range. To say it is undervalued given cash levels is axiomatic.
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