Metro Mining (ASX:MMI) has completed the feasibility study on its Bauxite Hills project (what’s in a name) in Australia in the last quarter of last year, and at first sight, the economics are actually looking pretty good. The initial capital expenditures for a 2M tpa operation are estimated to be less than A$35M with a payback period of less than 1.5 years as the operating expenses are estimated to be less than A$30/t (considering this is a direct shipping operation). The after-tax NPV15% is estimated to be A$235M, or roughly ten times the current market capitalization of the company.
Since the feasibility study has been published, Metro Mining has increased the total resources at Cape York to 65 million tonnes, indicating the total mine life will be in excess of 30 years. More importantly, the higher resource estimate also lends more credibility to Metro’s claims it might increase the production rate at Cape York once it gets the initial production underway.
A new pre-feasibility study has been completed to determine the optimum production rate which will incorporate the updated resource estimate in a new mine plan, trying to improve the economics and finding middle ground between the initial capital expenditures and being able to capture economies of scale. This updated study, which will focus on a 4M tpa scenario, indeed shows superior economics as the after-tax NPV 15% now comes in at A$440M, almost twice as high as the NPV in the first PFS.
This is due to the doubled production rate whilst the initial capital expenditures increased by just 15% and this obviously impacted the economics of the projects. Metro Mining continues to feel confident to use a FOB Bauxite price of US$38.6-45.40/t, which would result in an average annual EBITDA of A$133M.
Metro Mining could play an important role in what could be a Perfect Storm as Malaysia, which exports 22 million tonnes of bauxite per year to China, has announced it might suspend the bauxite exports until there’s a better legal and environmental framework in place.
Go to Metro’s website
The author holds a small long position in Metro Mining. Please read the disclaimer
