Canyon Resources Ltd (ASX:CAY) recently released a scoping study supporting a simple and effective mining operation in two stages at its Minim Martap Bauxite Project in Cameroon.
Stage one is expected to be a self-supporting bauxite mining operation with a simple, low cost and fast track path to market using existing rail and port infrastructure.
Stage two is anticipated to unlock higher export volumes and lower operating cost via the installation of the Kribi rail extension allowing access to a deep-water port.
Following is an extract from Far East Capital’s commentary on Canyon Resources published on December 14, 2019:
A few weeks ago we wrote up Lindian Resources, a junior bauxite exploration stock with promising leases in Guinea. At the time the share price was 1.5¢, but it has traded as high 4.1¢ last week - even after doing a $0.5m placement at 1.6¢. Thus it seems that bauxite is getting some traction in the market if it has the right risk/reward ratio. The market is clearly very happy to take on risk when there is a commensurate possibility of a high reward.
I saw another interesting bauxite stock in Perth last week, Canyon Resources (CAY), this time with a project in Cameroon. It is not as speculative as Lindian, as there is already a large high grade resource of 431 million tonnes at 48.8% Al2O3 with 2.6% total SiO2 that has been defined (out of a larger 892 Mt resource). This grade is at the higher end of the range that is considered commercial.
Canyon Resources (CAY) has been establishing a foothold over substantial high-grade bauxite resources in recent years, having been granted the Minim Martap project licence in August, 2018. The Scoping Study has already determined that a US$78m budget could establish a Stage 1, 3 Mtpa bauxite mining operation. Based on a selling price of US$58 pt and opex of US$43 pt (fob), the payback could be a relatively short three years. It is now expecting the PFS to be completed early next year.
Guinea is the powerhouse country in the seaborne bauxite trade, supplying more than 50% of work supplies and much of this is, in turn, controlled by the Chinese. The geopolitical risk of this situation highlights the need for geographical diversity, and Canyon stands well-positioned to provide an alternative source of premium quality bauxite.
Minim Martap is located 10 km from the 800 km railway line that connects the project to the shallow port of Douala. The deepwater port at Kribi would be a better long term proposition, but that will need a new 130 km rail link that will service a number of projects, not just Canyon’s. It will be interesting to see what the PFS says, paying particular attention to the assumptions on the bauxite price that is used. While the in-situ grade is good, the project needs to fall within the lowest cost quartile to have any serious chance of being developed.
At the recent price of 18.5¢, the market capitalisation of >$80m suggests that Canyon is being taken seriously by the market, as it approaches the $100m size. This is generally regarded as the magical institutional entry level size, below which it is very hard to get them interested.