Earlier this week, well-regarded Perennial Value Management fund manager Sam Berridge told The Australian Financial Review that he was most bullish on bauxite, dubbing it “the new iron ore” for the next five years.

“China is importing more and more of it as their domestic reserves run out,” he told the newspaper.

Morgan Stanley noted recently that China’s domestic bauxite supplies had been disrupted due to environmental, safety and grade decline issues.

“Domestic bauxite supply year-to-date is down 20% year-on-year and we expect annual production to be down 8% YoY to circa 60 million tonnes,” the bank said at the time.

“As result, China is importing more bauxite and alumina.”

For the first four months of 2024, Morgan Stanley said Chinese bauxite imports were up 6% YoY.

“Currently China imports 70% of its bauxite needs – of this, Guinea is 74%; Australia 22%.”

Timing is everything

Metro is the only pure-play bauxite producer on the ASX.

However, the company had a wobbly start to production at its Bauxite Hills direct shipping ore mine, north of Weipa in Queensland.

Metro chairman Doug Ritchie, a former long-time Rio Tinto executive team member, told shareholders in May the company had endured major challenges and setbacks which had threatened its viability.

“COVID-19, unprecedented ocean freight rates, cyclones and massive rainfall events to name just a few,” he said.

“Most recently, in December, Tropical Cyclone Jasper and its aftermath resulted in the suspension of transhipping operations for 10 days at a time when we were otherwise on-track to ship 5 million tonnes for the production year.”

Metro went on to ship 4.57Mt in 2023, which was a record, and is building on that result in 2024.

Last week, the company said it had achieved a new June quarter shipment record of 1.42 million wet metric tonnes, 12% up YoY, with 1.5Mt shipped year to date.

Metro said the quarter also marked the commissioning of the components of its expansion to 7Mt per annum.

The company’s new offshore floating terminal, Ikamba, is in operation and has achieved average barge rates of about 1700t per hour and peak discharge rates of 2300tph.

Ikamba will increase transhipping capacity to 9Mtpa.

Operating alongside TSA Skardon to load vessels, the record transhipment day so far in 2024 has been 31,178t.

Metro’s large offshore assist tug, Mandang, is being refitted and is scheduled to reach site next month.

The company has also commissioned a new wobbler screening circuit, which has already reached targeted barge loading rates of 1500tph, peaking at 1900tph.

‘Simplicity’

Shaw and Partners head of research Andrew Hines visited Bauxite Hills last week.

“The overwhelming impression from the site visit was the simplicity of the Bauxite Hills mining operation,” he said.

“The mining is free dig with virtually zero strip ratio (just topsoil to be removed) and there is no processing of the ore apart from screening.

“The main challenges are driven by the remote location, weather and the logistical planning of matching barge loading with tidal conditions and ship arrivals.”

Hines said 2024 was likely to be the year the market realised the cashflow potential of Bauxite Hills.

He said the company’s conservative guidance of 6.3-6.8Mt looked achievable and maintained his forecast of 6.8Mt.

Metro is aiming for average site EBITDA of A$15/t this year.

“At the midpoint of production guidance this implies a site EBITDA of circa A$100 million,” Hines said.

“However, with bauxite prices continuing to strengthen, there is the potential for the operation to achieve site margins of circa A$20/t this year. Our current forecast is for EBITDA of A$114 million, growing to A$164 million in CY25.”

Metro has senior debt of A$52 million, which it will look to refinance on improved terms. The company had A$22 million in cash at the end of March, with June 30’s cash balance yet to be published.

Metro shares dipped as low as A1c at the start of 2023 but have been steadily rising over the past 18 months.

The stock reached a three-and-a-half year high of A5.8c this week and has risen by 170% so far this year.

Citing Ikamba as a game-changer for Metro, Hines retained a buy recommendation following the site visit.

He lifted his price target from A7c per share to A13c – which would represent a more than 130% uplift from current levels.