Motley Fool Australia

3 reasons why bauxite might be the best speculative investment you’ll ever make

Several contributors at The Motley Fool have written over the past year on the potential for bauxite investments to deliver stellar returns.

China’s supplies of bauxite have taken a heavy hit this year with major exporter Indonesia banning bauxite exports in order to force domestic value-adding operations.

Another major exporter, India, has increased taxes on its bauxite, further increasing costs for Chinese buyers who are now casting around for alternate supply sources.

Recently China has even sourced bauxite from as far away as Africa and South America, paying millions extra in freight costs just to keep the factories running.

A presentation by Alumina Limited (ASX: AWC) at the World Aluminium Conference earlier this year shows signs of stressed buying on behalf of Chinese factories, with prices of up to $89 a tonne paid for spot shipments from Ghana, Brazil, Guinea, and the Dominican Republic.

Better yet for bauxite investors, global demand for aluminium is set to increase as economies in south-east Asia and the Middle East seek to use more of the metal in manufacturing.

Australian bauxite miners also enjoy some of the highest quality bauxite deposits in the world which allow us to play in the same ballpark as closer, lower-cost producers like Indonesia and Malaysia.

We also have a number of junior miners sitting on considerable established deposits, awaiting the commencement of mining to begin raking in cash.

Here are three of the better prospects, from most appeal to least:

Australian Bauxite Ltd (ASX: ABX) – last traded at $0.255, up 58.8% in the past year

  • Low-temperature Gibbsite bauxite
  • Extensive tenements in QLD, NSW and TAS, located close to major export ports and alumina smelters
  • 115Mt of indicated and inferred resources; targeting 200Mt which looks likely to be achieved
  • Estimated costs of around $30/ tonne, well below current prices
  • No payments to landowners required
  • Mining leases granted
  • Future potential to diversify into domestic bauxite supply as well as export

Bauxite Resources Limited. (ASX: BAU) – last traded at $0.15, up 31.5% in the past year

  • Low-temperature Gibbsite bauxite
  • 40Mt of indicated and inferred resources in addition to JV resources
  • Low mining costs expected to be in the same ballpark as ABX
  • Close to major port facilities in WA
  • Payment to landholders will be required
  • No mining leases granted yet

Queensland Bauxite Limited (ASX: QBL) – last traded at $0.027, up 212% in the past year

  • Low temperature Gibbsite bauxite
  • Still in early stages of development with scoping project underway until October
  • May become one of the lowest-cost bauxite resources in Australia with extensive surface bauxite and close distance to deep-water port at Mourilyan
  • Inferred resource of 30Mt
  • Somewhat lower grades compared to ABX and BAU, though drilling to upgrade the resource is ongoing
  • No mining lease granted yet

As readers can see, Australian Bauxite is the clear winner thanks to its proximity to production and extensive, geographically diverse resources.

Bauxite Resources comes second as it is further away from production, although a comparatively high price compared to Australian Bauxite also works against it.

Queensland Bauxite is still in a much earlier stage of development and enjoys a low price. The benefits from existing infrastructure including highways, a strong rural labour market and proximity to major cities Townsville and Cairns should not be underestimated.

Having already added Australian Bauxite to my portfolio, I’m now hunting for the next big winner.

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Where to invest $1,000 right now

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Motley Fool contributor Sean O'Neill owns shares in Australian Bauxite Ltd.

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