Australia has the perfect combination of budding bauxite producers, high quality reserves, and proximity to China available at exactly the same time as prices are soaring.

If that sounds like a great investing opportunity, you're right.

But like any commodity with variable supply and demand, there are major risks.

We saw it just last year with iron ore, when ore prices spiked up to $140 and companies like BC Iron Limited (ASX: BCI) were launched into the stratosphere, trading as high as $5.50 before coming down hard.

BC Iron last traded at $1.585.

Not a pretty outcome.

If you'd bought BC Iron at the right time – say just over $3 – and sold it at the right time, you would have seen profits of 50% in a year.

But if you'd got it wrong, you would have lost 50% of your original investment after two years.

If you and I can spot an opportunity for investing in commodity producers, you can bet your bottom dollar that multi-million dollar companies that employ highly trained analysts with decades of experience in their field can see it coming as well.

So those companies increase production, maybe open new mines, buy up a few competitors and before you know it supply catches up to demand, the market is saturated, prices fall and investors are left holding the bag.

If investors in Australia are jumping on the opportunity to sell bauxite to China, you can again bet your bottom dollar that businesses all through the dozens of nations close to China  are responding the same way.

Australian companies like Bauxite Resources Ltd (ASX: BAU) and Queensland Bauxite Limited (ASX: QBL) have enjoyed phenomenal price rises in the past year, soaring 62% and 171% respectively.

Fellow explorer Cape Alumina Ltd (ASX: CBX) fell 49%, mostly thanks to a frustrated merger with Metrocoal Ltd (ASX: MTE) earlier in the year. This bid has now succeeded and both companies will soon combine, following which I expect to see increased speculation factored into its share price.

But there are several key points investors are missing that desperately beg to be considered before investing in any of these companies:

1. You might miss the party

Given that none of the above listed companies are close to commencing operations, there's a real risk that increased production at mines in other nations will match supply with demand and decrease prices before Australian companies can get on board.

2. Costs are high, and competition is stiff

Australia has the highest cost of wages of any nation in Oceania with the possible exception of New Zealand.

We're also the furthest away and thus have the highest transportation costs, although we may have a slight advantage from an infrastructure perspective.

It's going to be very difficult for producers to substantively reduce costs to match any falls in prices – therefore investors will simply have to suffer shrinking margins and profits.

3. Sovereign risk

Tying in with point two above, the reason bauxite prices have climbed so high is partly thanks to increased export tariffs in India and an export ban in Indonesia, with both nations trying to force increases in domestic manufacturing.

A potential repeal of these policies will re-introduce more competitive supplies of bauxite into the market relatively quickly, increasing supply and making it harder for Aussie miners to compete.

So yes, investors in bauxite have the potential to generate huge returns.

But as you can see there are also huge risks commensurate with those rewards.

You don't need to take on all that extra risk just to earn a comfortable retirement.

A significantly safer bet is The Motley Fool's Top Stock for 2015, and in addition to an awesome business model it has a significant competitive advantage and is trading at a knock-down price.

Click on the link below and enter your email address to read our top analyst's free report and see just why this stock makes a fantastic investment.

The post The 3 huge hidden risks you need to know about your bauxite investment appeared first on The Motley Fool Australia.

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.

Three of the most promising companies on my watch-list come from The Motley Fool's recent free report "3 Resource Companies That Could Win Big" – in fact, one of them already has!

Make sure that you don't miss out on the last two by clicking on the link below and entering your email address.

It takes less than 30 seconds, and once you're done we'll send you the report absolutely FREE!

The post 3 reasons why bauxite might be the best speculative investment you'll ever make appeared first on The Motley Fool Australia.

Over the past week, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) slipped 1.2%, and is down another 0.9% in late afternoon trading today. Has the market developed the yips, and are more falls ahead?

Who knows, and for investors in these four stocks, what the market is doing means nothing. All four have zoomed ahead today. Not a bad performance in a down market…

Elders Ltd (ASX: ELD) has seen its shares soar 19% to 25 cents, after the beleaguered agribusiness company  announced the successful completion of a $57 million capital raising. The company says it is aiming for earnings before interest and tax (EBIT) of between $23 million and $28 million this financial year, while long-term debt will fall from $118 million to $21 million, and potentially to zero following the sale of Elder's investment in AWH.

Colorpak Limited (ASX: CKL) shares have rocketed up 15% to 69 cents, despite no news from the company. Colorpak designs and produce cartons, paper cups and lids, leaflets, labels, point-of-sale displays and other paperboard products. Unfortunately for shareholders, the 2104 financial year wasn't a great one, hit by impairment and restructuring charges, resulting in the company reporting a net loss of $13.2 million. With $39m of net debt, this is one company I'll be letting through to the 'keeper.

Clinuvel Pharmaceuticals Limited (ASX: CUV) has seen its shares soar to $4.19, a rise of 13.6%, continuing its strong performance this year. Since January, shares in Clinuvel are up a whopping 342%. Substantial shareholder Retrophin, Inc announced on Friday last week that it had increased its holding to 7.8% of the Clinuivel. The NASDAQ listed Retrophin offered $2.17 per share in early August 2014, and appears to believe shares are still cheap at existing prices.

Bauxite Resources Limited (ASX: BAU) is up 11.1% at 15 cents, and 30% in the last five days. As we noted last week, avoiding a costly legal battle is likely one of the drivers pushing the share price higher today.

While these stocks may be a bit speculative, investors looking for profitable companies paying decent dividends, with plenty of growth ahead, should read on…

The post 4 ASX stocks blitzing the market today appeared first on The Motley Fool Australia.

But as we have noted a number of times, just because the index is down, doesn't mean every stock is falling. Here are five stocks that are zooming ahead today…

Bauxite Resources Limited (ASX: BAU) has climbed more than 21% to 14 cents, after the company was queried by the ASX about a sudden jump in price. The company noted that it had recently settled a class action prior to the commencement of legal proceedings, and had returned 4 cents in capital to shareholders. Avoiding a potentially expensive legal bill plus damages if it lost is the most likely reason shares are higher today.

Heemskirk Consolidated Limited (ASX: HSK) has gone for another run, after posting a 26% rise yesterday. Shares are up 16.3% at 25 cents today. It seems the good news out of yesterday's corporate update is still filtering into the market. The announcement of discussions with a major industry investor, as a joint venture partner, appears to be particularly pleasing to investors.

TZ Limited (ASX: TZL) has climbed 12.5% to 13.5 cents, after announcing today that it has secured a strategic purchase order for its data centre smart locking focused IXP product in the Singapore market. Chairman Mark Bouris noted that the Monetary Authority of Singapore (MAS) has issued guidelines to address technology risks, which indicates a move towards regulated use of sophisticated locking solutions – such as those provided by TZ.

Panorama Synergy Limited (ASX: PSY) continues its strong run, rising 10.8% to 51.5 cents. Panorama shares are up 31% in the past week and 400% in the past month! The company recently raised $7 million to commercialise its LumiMEMs Reader, and says it is now fully funded, and aims to bring the product to market as quickly as possible. MEMs are tiny micro-electro-mechanical systems, which could be one of the hottest new technologies.

Redflex Holdings Limited (ASX: RDF) shares have climbed 7.8% to $1.10, possibly on the news that director Adam Gray had purchased an additional 790,000 shares in the company through Coliseum Capital, LLC. Coliseum now owns more than 23.6 million shares in the road safety camera technology company  – or around 21% of issued capital. The saying 'directors sell for many reasons, but only buy for one' may have convinced investors shares are worth buying.

The post 5 stocks soaring on the ASX today appeared first on The Motley Fool Australia.

Despite rising 367% over the past month, junior explorer Queensland Bauxite Ltd (ASX: QBL) is set to soar again today. In pre-trade moves, the shares are expected to open up another 45% at 6.1 cents.

The reason for the price move is that recent exploration results have confirmed that the company has a significant bauxite resource at its flagship South Johnstone Bauxite Project in North Queensland.

Despite only 26 drill holes being analysed from just 2.3% of its existing tenement, the company says the results confirm it has found a large, close to port and infrastructure, direct shipping ore (DSO) with initial estimates suggesting resources of more than 30 million tonnes.

The company is now upgrading its exploration target to a whopping 300 million tonnes, but the existing 30 million tonne DSO already supports a major bauxite export operation. Queensland Bauxite says it will look to initially ship 5 million tonnes per year, with revenues of between $200 million to $300 million each year, based on current bauxite prices.

Not bad for a company with a current market cap of just $12.7 million!

Direct Shipping Ore (DSO) generally means that the company can just dig the minerals out of the ground and ship them to customers, with very little need for processing. That should mean low production costs, and potentially, substantial profits. Surface deposit bauxite mining is reported to cost around $10 a tonne before transport and port costs.

Bauxite prices have surged to around $60 a tonne recently, after Indonesia implemented a ban on exports of the raw commodity in a move designed to encourage producers to process the raw material at refineries in Indonesia.

But that has opened the window for other countries, including Australia, to ramp up bauxite exports, particularly to China. And it's potentially why Australian bauxite explorers have soared in recent times, including Cape Alumina Ltd (ASX: CBX), Bauxite Resources Limited (ASX: BAU) and Australian Bauxite Ltd (ASX: ABZ).

Queensland Bauxite says it will now focus on early development of the project and considering bringing in partners to help fund the project.

The post Queensland Bauxite Ltd shares set to soar appeared first on The Motley Fool Australia.

It's bauxite – a mineral that is mostly transformed into alumina and with further refining into aluminium. Indonesia has also added tough new restrictions on exports of raw bauxite and as a result, China's imports have dropped dramatically, from 8 million tonnes each month, to just 1.6 million tonnes.

With Indonesia backing away from exports, Australian bauxite miners have an opportunity to fill in the gap in supply. Australia is the world's largest producer of bauxite, of around 30% of global production in 2012, while Indonesia accounted for 12%, according to Geoscience Australia.

Prices for bauxite have been hovering between US$50 and US$60 a tonne in recent times, and several bauxite projects are now looking more commercially viable. Peter Canterbury from Bauxite Resources Limited (ASX: BAU) has told ABC News that prices could run as high as US$75 a tonne, as China's demand continues to grow. The Wall Street Daily is also predicting bauxite prices to surge.

At the same time, aluminium stockpiles are plummeting, suggesting commentators may well be right about the direction of the bauxite price.

And that's one big reason why juniors Australian Bauxite Ltd (ASX: ABZ), Queensland Bauxite Ltd (ASX: QBL) and Cape Alumina Ltd (ASX: CBX) have surged over the past month. Queensland Bauxite has climbed a whopping 238% in the last month, including 80% in the last few days.

Rio Tinto Limited (ASX: RIO) currently operates Queensland's only producing bauxite mine at Weipa in Cape York, but only around a third of the raw material is shipped to China, with the remainder sent to the company's refineries.

That leaves the bauxite juniors with a big opportunity – now all they have to do is get their projects into production, which won't be an easy feat.

The post The next hot metal: Bauxite? appeared first on The Motley Fool Australia.