Minors adopt the simple concept of dig and sell
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