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Emerging Companies: Bauxite Resources Ltd (ASX: BAU)

Published 27-MAR-2014 00:00 A.M.


2 minute read

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Overview: Bauxite Resources Ltd ("BAU", the Company") is an Australian minerals Company engaged in mining, exploration, and development of bauxite properties. It is focused on Western Australia’s Darling Ranges, with direct and Joint Venture interests spanning 17,000 km2, incorporating Measured, Indicated and Inferred bauxite resources totalling 338million tonnes (mt). The Company’s most advanced assets include the Fortuna deposit (39.5mt), and free carried interest (30%) in the Felicitas JV (218.7mt). We initiated coverage in Oct 2012 at $0.11/share with a ‘spec buy’ recommendation for its turnaround potential.

Catalysts: After expanding its project inventory by 39% during the past six months, BAU is shifting focus to mine planning. Progression of environmental studies at Fortuna and scoping works at the Felicitas JV should highlight the Company’s near-term production potential. In a market facing supply constraints due to Indonesian export bans, we expect BAU’s status to attract greater recognition. The Company is presently valued below its cash reserves.

Hurdles: Whilst BAU has sufficient funding to advance project development, external capital needs may be influenced by a shareholder class action. Litigation funder, IMF, is pursuing a claim relating to disclosures surrounding a $19million share placement completed in Oct 2009 under former management. The Company intends to defend the claim, which we estimate could consume half of its cash reserves.

Investment View: BAU offers speculative exposure to the growing seaborne bauxite trade. We are attracted to the strategic positioning of its assets to key Asian markets and near-term production potential. Whilst strained landholder relations under former management and the IMF claim have challenged sentiment, we see a positive balance of risks. The Company is well funded and valued below its cash reserve, hence we reiterate our ‘speculative buy’ advice.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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