Michael Nesbitt: Guinea is going to become an important bauxite supplier to the world

----Interview with Michael Nesbitt, Managing Director of West African Bauxit

WAB is owned entirely by a private Hong Kong company, which, in turn, is owned by a small number of private shareholders with significant mining and bauxite experience. All shareholders have excellent personal and banking references and any proposed strategic partner would have no concerns about their involvement. We would be pleased to provide further information to a proposed strategic partner under the auspices of a standard confidentiality agreement.

Asian Metal: Chinese demand for Guinean bauxite is rising. How do you think of the Guinean Guinea bauxite prospective?

Michael: I think in the mid to long term Guinea is going to be one of the major exporters, if not the major exporter, of bauxite to the world. We are seeing increased stability, infrastructure and investment in Guinea in recent years which will allow Guinea to become a much more important bauxite supplier. The key to long-term success for companies going forward, is how they are positioning themselves in Guinea right now.

Asian Metal: Compared with Malaysian and Australian bauxite, what do you think of the challenges and opportunities for Guinean Guinea bauxite? Why do you invest bauxite in Guinea?

Michael: The Malaysian bauxite came online quite quickly, and caught a lot of people off guard. We think Malaysia is a short term market participant though. The Malaysian bauxite market is very disorganized and there is little to no regard for environmental stewardship there – which does not reflect well on the industry. Australia has been a major player for years, and will continue to play a significant role, although high wages, increased regulation, and the involvement of environmental groups without regard to practical mining issues have made the investment climate there more difficult, and operating more expensive. Perhaps the devaluation in the AUD will offset some of the increasing cost of operating in Australia.

We became involved in Guinea through our local partner, Camen Resources. Like many others, we had been watching Guinea for quite some time as it has incredible bauxite resources. We carefully reviewed the recent changes in Guinea’s investment climate. There is a new mining law, increased political stability and an emphasis on transparency. These factors, combined with the very high quality and massive quantities of bauxite available for exploration encouraged us to invest in Guinea.

Guinea still has some challenges to overcome, primarily regarding infrastructure. But we are starting to see some improvements, including recent agreements to share some of the existing rail infrastructure and the recent construction of a substantial barging port by Winning/Hongqiao.

Asian Metal: How about the location, reserves and bauxite grade of your project?

Michael: Our licence (#248) is well situated in the area of Guinea containing the highest quality bauxite, adjacent to the porior BHP permit Santou Houda (regarded as the best of the prior BHP permit areas), and just east of Sangaredi.

Having drilled only 37% of our permit area, we already have a JORC Inferred Resource of 592 million dry tonnes of gibbsitic bauxite at 45.2% Al2O3, including 96 million dry tonnes at 49% Al2O3. Our Reactive Silica is very low, at 1.0 %.

As mentioned, this resource estimate relates to exploration of only 37% of our permit area. We anticipate the tonnages to increase significantly when we complete drilling over the rest of the permit area and we expect the bauxite quantity to be well in excess of one billion tonnes.

Asian Metal: How far is the mine site from the port? How about the infrastructure construction conditions, like road, railway, etc. ?

Michael: The project is only 25 km away from the existing Sangaredi rail head which can transport our bauxite to existing port facilities at Kamsar. Access to our site by road is excellent. The closest port is the new Winning/Hongqiao Port about 120 km away. We have looked at a trucking scenario to this port, and can proceed on that basis with a positive NPV.

GAC and its parent company Mubadala are planning to construct a major new port near Kamsar as well. We are looking at the viability of shipping to that new port as well. There are a number of port infrastructure improvements contemplated in Guinea right now.

Asian Metal: What do you think of the cost for the whole investment? Would you like to find some cooperators?

Michael: The answer to that really depends on how fast we develop the project and the output rate of the bauxite mine. We have looked at range of development options for the project, ranging from a relatively low production rate of 2 Mdt per year, a mid-production model in the range of 5 Mdt per year and a high production scenario (10 Mdt per year). We have modeled these scenarios in a Scoping Study and all of them have demonstrated a substantially positive NPV. Each scenario is profitable.

The resource is large enough and of a high enough quality to justify a large investment for a large operation. But our preference is to develop a smaller operation first to generate cash flow, and then expand the operation as market conditions dictate.

Given the flexibility in development options, we think this project will be well suited to a range of companies, in particular, end consumers of bauxite. We are currently looking for development partners and welcome inquiries in that regard.

Asian Metal: In 2016, Weiqiao plans to transport 10 million tonnes of Guinean Guinea bauxite to China. When will you be able to produce and sell bauxite? Will you sell directly to consumers or through traders?

Michael: Depending on the development scenario, we can be ready to sell bauxite within 1.5 years. Our preference would be to sell directly to the end users, but that will depend on how and who we develop the project with.

Asian Metal: In August, 2015, China imported around 60,000 tonnes of bauxite from Guinea at about USD71/t CIF China. How do you anticipate the price in 2016? What is the estimated cost for your bauxite?

Michael: We expect a slight downward pressure on bauxite prices given the current market oversupply, and slowing economy in China, but in the long term, we are confident in the bauxite market. We are also seeing downward pressures on shipping costs as most of the commodities markets are cooling. The cost for our bauxite will depend on how the mine is developed and the size of operations that we utilize.

Asian Metal: Shipping cost will be a major problem for Guinean Guinea bauxite. What is your plan to cope with the problem?

Michael: By keeping our capital and production costs low, we can achieve some flexibility in pricing to help offset shipping costs. We would also utilize cape size vessels where possible to achieve economies of scale.

Asian Metal: Regarding your project, do you want to add more details?

Michael: Our project is relatively new as we commenced exploration in February 2014. Notwithstanding that, we have found a very large bauxite reserve and our geological models indicate that our permit area contains an extremely large quantity of high quality bauxite. We believe that our project is ideally situated for development and we welcome interest from end users. We are an experienced group and we have developed successful bauxite mines before which remain in operation today. We would be happy to discuss our project with any company that is interested in working with us. I can be reached directly at mnesbitt@westafricanbauxite.com