Price comparison with what MMI are doing. Monday, 21 August 2017...

Price comparison with what MMI are doing.

Monday, 21 August 2017 Metro Mining Barging ahead Analysts | Matthew Keane | James Wilson
Quick Read
Metro Mining (MMI) is progressing rapidly on its Bauxite Hills project in the Cape York Peninsula in Queensland. Earth moving equipment and construction steel for the barge loadout facility are being delivered to site via barges. Due to the simple nature of the operation, construction is expected to take just 4-5 months. MMI is fully funded after securing $40m in debt facilities with Sprott Private Resource Lending and Ingatatus AG Pty and raising $38m via an equity issuance at $13.5¢. The Company is poised to benefit from the rapidly expanding seaborn bauxite market into China by ramping up to ~6Mtpa of DSO product within four years. At current prices, the project would achieve >$25/t margins, facilitating rapid payback of development capex (pre-production capex ~$36m). Argonaut maintains a BUY recommendation with a $0.42 target price.
Event & Impact | Positive
Development underway: MMI has commenced development on it Bauxite Hills Project. Earthworks for the barge loadout facility are underway and deliveries of infrastructural items have commenced. All infrastructure is due to be erected within four months and the main haul roads will be finished a month later in December 2017. First shipping of DSO bauxite is scheduled for April 2018 after the northern-Australian wet season (January to March). The mine has attained all requisite environmental approvals and the grant of a final Mining Licence is imminent.

Market fundamentals remain strong: Seaborn imports into China for 2017 are estimated at ~50-60Mtpa and expected to grow to 130-150Mtpa by 2025. This rapid increase is being driven by declining bauxite reserves in Chinese and a subsequent shift of alumina refineries to coastal provinces (primarily Shandong). The highest increase of bauxite imports is expected to occur in the early 2020s, when the depletion of reserves in the northern Shangxi and Hunan provinces is likely to coincide with new refineries coming online. China has five alumina refineries planned with initial capacity of 8-10Mtpa requiring ~20-25Mtpa bauxite feed. Of the five, we consider three to be probable and the remaining two more speculative. MMI is well positioned to service new demand with a long-life project, an established Cape York brand (curtesy of RIO’s nearby Weipa operation), close proximity to market, low sovereign risk supply and scalable production.
Recommendation
Argonaut maintains BUY recommendation with a revised target price of $0.42 (from $0.44) taking into account dilution from the recent equity raising.
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