Mi­nors adopt the sim­ple con­cept of dig and sell

The Weekend Australian - Travel - - Resources - Robin Bromby

EING part of the alu­minium pro­duc­tion chain has usu­ally meant be­ing a global player. Af­ter all, this is — more than any other sec­tor of the min­er­als busi­ness — made for ver­ti­cal in­te­gra­tion.

Com­pa­nies such as Al­can or Co­ma­lco in­creas­ingly are in­volved in all stages — dig­ging up the baux­ite, re­fin­ing it into alu­mina and then op­er­at­ing the smelter which turns out the alu­minium.

Then came along Bris­bane-based Me­tal­lica Min­er­als which saw the chance to just dig up the baux­ite, sell it, and let that buyer worry about re­fin­ing and smelt­ing.

It’s the model that has worked so well in iron ore, and is be­ing adopted en­thu­si­as­ti­cally among emerg­ing sec­ond-tier iron ore pro­duc­ers in West­ern Aus­tralia, but it hasn’t been seen much in the alu­minium game.

This strat­egy has clearly ap­pealed to two high-pow­ered in­vestors, Chiping Xinfa Huayu Alu­mina — China’s largest in­de­pen­dent alu­mina-alu­minium pro­ducer, (as well as be­ing a coal miner and power gen­er­a­tor) — and Re­source Cap­i­tal Funds of Den­ver, each own­ing 17.5 per cent of the com­pany set up by Me­tal­lica to run the baux­ite busi­ness, Cape Alu­mina.

The ap­peal to th­ese two global play­ers is the 2500sq km of ten­e­ments sur­round­ing the huge land hold­ing around Weipa on Queens­land’s Cape York Penin­sula held and mined by Co­ma­lco, and over which Cape Alu­mina has lodged li­cence ap­plica- tions. Baux­ite has been mined around Weipa since the 1960s, but the ar­eas picked by Me­tal­lica had been va­cant, ex­plo­ration li­cence terms, for more than 30 years.

Back in 1971, the then CRA (now Rio Tinto) drilled on what is now Me­tal­lica/Cape Alu­mina ground and com­pleted a fea­si­bil­ity re­port that showed that the baux­ite grades would be eco­nom­i­cally mar­ginal at that time, so CRA sub­se­quently sur­ren­dered the ten­e­ments. As Cape Alu­mina’s chief ex­ec­u­tive Paul Mes­sen­ger com­ments, go­ing back to any area that was once drilled and then dropped by CRA in the days of low metal prices is not a bad strat­egy for a ju­nior look­ing for forgotten de­posits.

The baux­ite ini­tia­tive was mainly the work of Me­tal­lica’s man­ag­ing di­rec­tor Andrew Gillies. He knew Queens­land well, and that the area’s Co­ma­lco had not pegged con­tained frag­mented de­posits — and there was a great deal of leg­work to do with the lo­cal peo­ple to get na­tive ti­tle clear­ance.

But th­ese ob­sta­cles seemed less im­por­tant by 2003 when Gillies started to re­alise that the com­modi­ties boom was get­ting un­der way. He be­gan look­ing for op­por­tu­ni­ties that fit­ted with what he de­scribes as Me­tal­lica’s phi­los­o­phy: to be ‘‘ op­por­tunis­tic, re­al­is­tic and far-sighted’’.

With ini­tial back­ing of Rus­sian-Ukrainian alu­minium com­pany Ane­gada Met­als Corp — which sub­se­quently sold down its in­ter­est in Cape Alu­mina — the com­pany made its ap­pli­ca­tions, not get­ting its first ten­e­ment un­til April 2006.

By late July, it should have five li­cence ar­eas in the bag. More­over, it now has a maiden re­source af­ter 674 drill holes at the Wen­lock and Cat­fish Creek de­posits pro­duced an es­ti­mated 54 mil­lion tonnes of baux­ite. In qual­ity terms, this baux­ite is what is known as sec­ond tier, or lower grade, min­eral — the re­source av­er­age is 52.9 per cent baux­ite with a high sil­ica im­pu­rity level of 12.8 per cent. To make things more com­pli­cated, the re­source then has to be judged on what is known as ‘‘ avail­able alu­mina’’ — that is, the pro­por­tion ex­tractable in a re­fin­ery.

Ac­cord­ing to Mes­sen­ger, that avail­able alu­mina can­not be lower than 40 per cent of what you dig up, and Wen­lock’s grade is be­tween 42 per cent and 44 per cent (it re­cently dropped a WA baux­ite project when it did not meet the 40 per cent test).

But Me­tal­lica and Cape Alu­mina are com­fort­able with what they have, given that the baux­ite is suited to the new gen­er­a­tion of alu­mina re­finer­ies in China. And this is not go­ing to be huge project in terms of cap­i­tal cost. The plan is to trans­port the baux­ite by 450-tonne road trains to the coast 30km from Wen­lock, then barge it off­shore to a moor­ing served by ei­ther Pana­max (50,000 tonnes) or Cape size (100,000 tonnes) ships which would take the baux­ite to China. ‘‘ It’s a very sim­ple process,’’ adds Gillies.

But there’s plenty of work still to do: the part­ners in Cape Alu­mina have only just be­gun to test what they have un­der­neath those 2500sq km of land.

Op­por­tu­nity: Me­tal­lica man­ag­ing di­rec­tor Andrew Gillies saw a boom on the way in 2003

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