The junior mining space is littered with “jam tomorrow” stories where a lack of scale, funds and/or nous ensures failures outnumber the success stories.
Perhaps they should take a leaf out of the handbook being compiled by GXG-listed Anglo African Minerals (GXG:AAM).
The owner of four bauxite licences in Guinea, it has what looks to be a fairly realistic plan to get its first project, FAR, into production by the third quarter of next year.
Requiring 40mln [US$] of capital investment to build a 3mln tonnes a year operation, the economics look compelling with the net present value of the operation put at US$163mln and the life of mine free cash flow estimated to be US$294mln.
At 43mln tonnes, the deposit isn’t particularly large; however, grades of 42% alumina and just over 3% silica are typical of the area and make for a very saleable product.
Of course, with any project, especially one in Africa, infrastructure is key, particularly transportation links to the nearest export terminal.
FAR sits just 23km to the rail line used by Russia’s RUSAL to take its output to the port of Conakry.
Chief executive James Lumley reveals negotiations with authorities for access to the line have gone “reasonably well” to date with more talks scheduled soon.
This is all part of the preparatory work required to develop a shallow, open-cut ‘truck and shovel’ operation at FAR.
The contract for the environmental study should be awarded by the end of next month, while the all-important bankable feasibility study (BFS) required by lenders will get underway soon after.
The recent round of drilling, meanwhile, will allow the firm to promote some of the resource from the inferred to the higher confidence indicated category to be included in the BFS.
Having secured a convertible loan note for £10mln from a group of investors put together by mining veteran John O’Connor, AAM has the cash necessary to carry out the preparatory work.
Funding the project is another matter. Lumley reveals there are potential buyers of FAR’s bauxite that might also agree to bankroll the project, including the 7mln [US$] equity portion.
“We are in discussion at an initial stage with off-takers in the Middle East. Chinese companies have been circling us, but that’s been the extent of it,” CEO Lumley said.
“If we got our funding via an off-take agreement that would be ideal for us. If that happened then good; if not we would go down the traditional route.”
That traditional route would require tapping the debt market in some form as well as AAM’s shareholders.
FAR is just one project. Earlier this month it completed an inferred resource statement for the Toubal Project, a heavyweight in comparison to FAR at 722mln tonnes averaging almost 43% alumina.
The fact it is tucked right away in Guinea’s interior makes this one for the future – or at least until the Bamako to Mali or Simandou rail line is built.
The cash flow from AAM’s first mine will help fund work on Somalu, which, with 1bn tonnes at 44% alumina, would very easily support a 5mln tonne year operation at an initial capital cost of 200mln. However, given its scale, it is unlikely the firm would develop the Somalu on its own.
Its size also means the operation will require its own facility at Conakry and the company is already looking to enter in to an agreement with the Port Authority on a parcel of land.
Unlike other bulk commodities, the appetite for bauxite shows no signs of being sated.
Even before Indonesia’s mineral export embargo, which threw the market into turmoil, it was reckoned that there was a 15mln tonne shortfall between supply and demand.
And with China’s stockpiles running down and other countries perhaps looking to follow the lead set by Indonesia, there is demand for far more producers than we have today.
Lumley believes is in excellent shape to tap into this buoyant market: “Its location near existing infrastructure, the fact it is bite-sized, so the capital requirements aren’t huge, means we are in a good position to take this quickly into production.”