Canyon Resources (ASX: CAY) - 2025 Pick of the Year

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,307,692 CAY shares at the time of publishing this article. The Company has been engaged by CAY to share our commentary on the progress of our Investment in CAY over time.

Today we are announcing our 2025 Wise-Owl Pick of the Year:

Canyon Resources (ASX:CAY).

CAY is aiming to bring to market one of the largest undeveloped, high grade, direct shipping bauxite deposits globally - located in Cameroon, Africa.

It's a genuine Tier 1 asset - which means it has massive scale, an extensive lifespan, and economically efficient production costs.

We think it has a very strong chance of quickly getting into production.

Just as the bauxite price appears to be entering a strong upwards trajectory.

CAY owns the eighth largest bauxite project in the world.

A 1.1 billion tonne resource + reserve.

(the bauxite price out of western Africa is currently at $110 per tonne)

Bauxite has started getting the market’s attention after a quick price rise over the last 3 months - we’ll explain why shortly.

CAY’s giant bauxite deposit is extremely high grade, with low impurities - this is important for bauxite buyers.

It is trucking distance (~50km) to an existing railway that can transport the bauxite to port for export.

Transport infrastructure is very important for producing bulk commodities like bauxite.

Bauxite is the key ingredient to make aluminium.

It takes 4 to 5 tonnes of bauxite to make 1 tonne of aluminium.

Aluminum is a critical metal for the energy transition, the defence industry and many general, everyday applications:

Two weeks ago we wrote that global uncertainty is a key investment theme for us in 2025.

Part of that theme is defence supply chain raw materials as global uncertainty leads to increased defence spending in most countries.

Aluminium is listed as a “very high supply risk” category in the 32 NATO member countries list of defence-critical materials for making tanks, fighter planes, submarines, artillery and ammunition.

You might have to squint to read aluminium in the image below - basically aluminium is the red ‘very high supply risk’ box for almost every military application (we circled aluminium in blue):

(Source, Source)

Aluminum is lighter than steel - it makes ships, planes and vehicles more efficient and faster.

Aluminium is also a critical metal in electrification - electric networks and transmission, solar, and electric vehicles all use aluminium in some capacity.

The second largest producer of the bauxite used in global aluminium production is Guinea - also in the west of Africa.

Guinea produces ~24% of global bauxite supply each year.

In October last year guinea halted a bauxite shipment, which sent the bauxite price surging as bauxite buyers scrambled to diversify their supply sources.

A perfect time to attract the interest and capital to develop a new bauxite mine...

We first initiated coverage on CAY back in 2022 (read it here)

Back then CAY was on the cusp of getting key mining permits signed and delivering a Bankable Feasibility Study - the final step before mine build financing and production.

Since then a lot of progress has been made and we think CAY has got to the stage where it warrants us making it our 2025 Pick of the Year for later stage companies.

(especially with the bauxite price recently moving upwards, which is attracting interest and capital into new bauxite projects)

Since we first initiated coverage on CAY three years ago the company has:

• ✅ Published a Bankable Feasibility Study
• ✅ Secured a strategic placement with institutional investors Eagle Eye Asset Holdings - who have also purchased ~$4.1M CAY shares on market between August and November last year - they now own ~41.72%)
• ✅ Secured a Mining Convention with the Cameroon regulators
• ✅ Secured an initial 20 year Mining Licence over its project (with the ability to renew for longer periods)
• ✅ Completed 1,526 holes for 23,524m of drilling, focused on increasing the size and scale of the resource, and move more of the resource into higher confidence categories.

These drilling results should be out soon and will feed into a revised BFS that CAY said they are working on.

We assume the revised BFS will also use a higher bauxite price, which has more than doubled since the original BFS was published.

The project is now fully permitted and there is a powerful, major shareholder group on the register in Eagle Eye Asset Holdings.

Plus a looming supply squeeze in the bauxite market creates the ideal conditions to get a mine funded and built.

We think CAY could be one of those rare small cap companies that go from JORC resource, through feasibility studies and into production.

It hardly happens at our end of the market, but we think the bauxite supply/demand situation will be what pushes this project into production.

And we hope quickly.

In 2024 we shifted our focus from earlier stage exploration bets to focus on more advanced stage projects in companies with slightly bigger market caps than we would usually look to Invest in.

So far our 2024 Investments in this space have performed relatively well:

• MTH - 715%
• SS1 - 583%
• AL3 - 420%
• EIQ - 110%

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. These products, like all other financial products, are subject to market forces and unpredictable events that may adversely affect future performance.

Today will cover why we Invested in CAY, share our Investment Memo which covers in detail:

• What CAY do
• The macro theme for CAY
• Our CAY Big Bet
• What we want to see CAY achieve
• Why we are Invested in CAY
• The key risks to our Investment Thesis
• Our Investment Plan

Let’s start with our reasons for making CAY our Pick Of The Year:

Reasons we made CAY our Wise-Owl 2025 Pick Of The Year:

1. One of the biggest undeveloped bauxite projects in the world

CAY owns one of the largest undeveloped, high grade bauxite deposits globally.

(Source)

2. A “tier 1” asset with a giant resource and premium quality product:

When looking for “tier 1” assets there are two key factors: size and quality.

CAY’s project has a JORC resource of 1 billion tonnes at 45.2% Alumina

with a low silica content of 2.7% (less Silica % the better when it comes to bauxite)

It also has a reserve of 108Mt at 51.1% and 2% silica.

(Source)

3. Impending structural changes to the bauxite market

The bauxite market is extremely tight, which has pushed up bauxite prices significantly over the last two years. Global bauxite supply is concentrated with ~80% of production coming from Guinea and Australia.

Any disruptions to supply out of either of those countries could impact the market massively.

Guinea is the primary bauxite supplier in West Africa and the 2nd biggest producer globally... but they recently blocked an export out of the country.

Aluminium producers got spooked and are now looking to diversify their bauxite supply.

The blocked export sparked a rally in the bauxite price from ~US$60/tonne to where it trades now at ~US$110 per tonne.

(Source)

4. Permitting complete which paves the way to production -

Despite its rich natural resources Cameroon has had very few operating mines.

So, for CAY to secure a Mining Convention and 20 year Mining License, which took about 4 years of work, has significantly de-risked the project and provides a pathway to production.

5. The new major shareholders of CAY have had success in Africa

Eagle Eye Asset Holdings are the now biggest shareholders of CAY (owns 41.27%).

They were the biggest shareholders in Prospect Resources before the ~$530M sale of its lithium project in Zimbabwe back in 2021. We are backing the team to achieve similar success with CAY.

Eagle Eye Asset Holdings has purchased ~$4.1M of CAY shares on market between August and November 2024 (source).

6. Compelling project economics, improved by a strong bauxite price

CAY published a Bankable Feasibility Study (BFS) in 2022 showing an NPV of US$452M and CAPEX of US$253M over a 20-year mine line.

However, the price of bauxite has more than doubled since this BFS was published so we think these numbers could improve when CAY puts out its updated study.

In addition CAY’s BFS is only from its reserves, which is only about ~10% of the total current bauxite resource.

In the 2024 Annual Report CAY said it is working on a “revised BFS”, with all the extra drilling and rising bauxite price we assume the numbers are only going to get better.

(Source)

7. Project close to existing Infrastructure

The key to bauxite mining is always its proximity to rail to get to a port from where it can be shipped to export markets OR its proximity to smelting facilities where it can be refined into aluminium.

CAY’s project is in trucking distance (~50km) to a rail line that goes to a port.

In December 2020, Cameroon received a EUR$120M commitment from the European Investment Bank to upgrade one third of the railway line that CAY plans to use.

We are Invested in CAY for the long term, and we are hoping that a combination of the above reasons help the company achieve our Big Bet which is as follows:

Our CAY Big Bet:

“CAY takes its bauxite project into production is re-rated to a market cap greater than $1BN”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our CAY Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

The macro theme for bauxite is as strong as we have ever seen

Over the weekend we published a deep dive on the state of the bauxite/aluminium space right now.

For those who missed it, here is a link to our Bauxite market explainer - this is a brief summary of what we wrote about:

Bauxite & Aluminium:

• Bauxite is the raw material used to make aluminium.
• Producing aluminium requires 4-5 tonnes of bauxite per tonne of aluminium.
• Recent bauxite price increases have surpassed iron ore prices.

Aluminium's Critical Importance:

• Aluminium is listed as a "very high supply risk" in NATO countries for military use.
• It's a critical metal in electrification and various industries, including construction and packaging.
• Aluminium is essential for military applications (tanks, planes, submarines) and electrification (electric vehicles, solar, power transmission).

Aluminium Market & Production:

• Global aluminium market size was $169 billion in 2023, projected to grow to $311 billion by 2033.
• China produces over 50% of the world’s aluminium, but it faces bauxite supply challenges

China's Bauxite Supply Problem:

• China's domestic bauxite supply has been depleting for the past decade.
• China now imports bauxite from Guinea, which supplies 69.9% of China's bauxite imports.
• Any disruptions in Guinea’s supply significantly affect global aluminium supply.

Guinea’s Supply Risks:

• Guinea is the world’s second-largest bauxite producer.
• Supply disruptions in Guinea have already pushed up bauxite prices.
• Concerns over potential export bans by Guinea, similar to Indonesia's 2022-2023 ban, could lead to significant supply shortages.

Impact of Export Restrictions:

• Countries like Indonesia and Guinea may restrict exports to build domestic smelting capacity.
• Such actions could create major supply gaps in the global bauxite market, which drive bauxite prices higher.
• New projects (like CAY’s) are needed to fill these gaps

Current Market Dynamics:

• The bauxite price has risen due to supply concerns, especially from Guinea.
• Chinese companies are diversifying their bauxite sources to mitigate potential supply risks.
• Future supply disruptions could further escalate bauxite prices.

New Bauxite Projects needed to diversify supply sources:

• New bauxite projects, like the CAY’s project in Cameroon, may help fill supply gaps
• There's a focus on large undeveloped bauxite resources to meet future demand and diversify supply

In the note you can get a sense of why we think the timing is right for an Investment in this sector and why we think CAY stands to benefit from strong macro tailwinds.

Click here to read our full article: Global shifts in bauxite demand and supply.

CAY’s new major shareholders have had success in Africa before...

A lot has changed since we first added CAY to our Portfolio back in 2022.

CAY has managed to bring onto its register a strategic, cornerstone investor.

In late 2022, Eagle Eye Asset Holdings made took a cornerstone stake in CAY:

(Source)

Eagle Eye Asset Holdings has a successful track record of investing and developing projects in Africa:

Since then they have moved up to 41.72% shareholding of CAY:

(Source)

They have been buying on-market aggressively in recent months which is always a good sign:

(Source)

Eagle Eye Asset Holdings have had success in Africa before.

Eagle Eye were major shareholders in Prospect Resources leading up to the sale of its Arcadia Lithium project in Zimbabwe back in 2022.

Prospect sold that asset for ~$530M and then went on to return most of that money to shareholders.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. These products, like all other financial products, are subject to market forces and unpredictable events that may adversely affect future performance.

Eagle Eye were the single biggest shareholders of Prospect Resources when that deal was done.

(Source)

A huge win for shareholders given Prospect’s share price was less than 20c only 12 months before the sale and the eventual cash return.

We think a cornerstone investor with deep pockets and regional experience is exactly what CAY was missing for a long time.

When the critical and long awaited mining license was finally received by CAY last year (after working on it since 2021) CAY said that “Eagle Eye Asset Holdings played an instrumental role in granting the mining convention and mining licence”.

(Source)

It’s always handy to have an active, well connected major shareholder helping in the background.

We don’t often see a project this big in the hands of a junior

CAY has the 8th largest bauxite resource/reserves by size.

Bulk commodity projects of this size are normally snapped up by major miners like Rio Tinto (capped at AU$165BN) or Alcoa (capped at AU$16BN)...

But this one is in the hands of ~$270M capped CAY.

CAY’s project has a 1 billion tonne JORC resource at an alumina grade of 45.3%.

Inside that sits an ore reserve of 109Mt at 51.6% alumina.

Enough for over 20 years of mining based on CAY’s bankable feasibility study published in 2022.

The big differentiator for CAY’s project is its silica content which is extremely low at an average of ~2.7%.

(anything less than 5% silica is considered a premium product)

When it comes to a solid bauxite resource we are looking for high alumina grades and low silica grades.

Silica is considered an “impurity” so the less of it there is, the easier it is to take the bauxite and turn it into aluminium.

This is one of the main reasons we like CAY’s project.

Here is a table comparing CAY’s project to other projects that are currently in production - arguably the grades and silica content are the best on CAY’s project...

(Source - CAY 2021 Presentation)

And here is a visualisation from a 2022 CAY investor preso:

(Source - CAY 2022 Presentation)

This is based on the 2022 BFS.

CAY’s project is huge based on its existing resource but it's worth noting there is still plenty of exploration upside to the project.

(Source - September 2024 CAY quarterly)

While it might not matter from a development perspective, the exploration upside is key for the bigger players in the mining industry who are looking for assets they can operate for 50 to 100 years.

AND assets where they can scale up or scale down operations to meet market demand.

CAY’s current resource sits on just ~16 of the ~62 different prospective areas of its project

(Source)

And CAY just finished a drill program as part of a planned resource upgrade due in H1 2025.

(Source)

CAY’s plan is to deliver these three catalysts all inside the next ~6-7 months:

1. Drill results (first half of 2025)
2. JORC resource upgrade
3. Revise BFS with new drilling and updated bauxite price.

With 23,254m of new drill results coming in H1 2025, we want to see material upgrade to total JORC, and movement of more tonnes from indicated to measured, to further firm up the confidence in the deposit.

We are hoping to see a material upgrade to the existing BFS, which was done back in 2022:

(Source)

Keep in mind the BFS was done using a bauxite price of ~US$45.22 per tonne...

Since then, the bauxite prices have more than doubled:

Bauxite mining is very simple when compared to other mining projects so we aren't expecting any huge surprises from a CAPEX point of view either.

CAY’s project once developed will be considered DSO (Direct Shipping Ore) which means, CAY will dig it out of the ground, load it onto a train, take it to port and send it to customers.

WITHOUT any processing required in between.

(All of this means it's cheaper to mine and sell).

Here is how it looks in pictures:

The only thing that will require big CAPEX is the infrastructure piece of the project cost.

So far the Cameroon Government has already been doing the groundwork on this front:

1. Cameroon government's rail authority "CamRail" has been upgrading the rail infrastructure across the country with ~338km in new rail line constructed and over 68 railway bridges constructed.
2. In late 2020 the Cameroon government received EUR$120M in financing from European Investment Bank to upgrade a 330km section of track that sits on the exact same railway line that CAY is planning to use to get its product to the Douala port.
3. After the Cameroon government completed these upgrades CAY received confirmation from the Cameroon rail authority "CamRail" that the railway line was now deemed capable enough of shipping the desired 5 Mtpa of bauxite and potentially more than this.

Clearly infrastructure has always been the big hurdle for CAY’s project - but we see everything falling into place now.

Why our Pick Of The Year and why now?

The Mining Licence being granted combined with the rising bauxite price.

CAY is suddenly in the right place at the time.

The reason we are making CAY our 2025 Pick Of The Year for later stage companies is because of the two key permits the project received over the last ~6 months.

In July 2024 CAY received a signed Mining Convention Agreement - we were waiting for this from back when we first wrote about CAY in 2022.

Then in September 2024 CAY received a signed mining permit - this was the final hurdle for the project to get developed.

It cannot be understated how important these permits are.

Without them, CAY would be unable to develop its mine and attract investment for its project.

These licences were more than four years in the making, and are not easy to get.

Despite its rich natural resources Cameroon has had very few operating mines.

So we see CAY as trailblazers for the mining industry in the region.

The mining permits set out a 20-year mine life for the project with an option to extend for a further 10 years (at a time).

It also sets out the following timeline restrictions on the project:

• Development work is required to commence within 2 years
• Exploration and production within 5 years

This provides CAY, its largest shareholder Eagle Eye and investors (like us) with a clear set timeframe for when to expect major developments.

This means that within the next 12 months the company needs to make serious and measurable progress from an infrastructure point of view.

That’s why we have called CAY our Wise-Owl Pick of the Year for 2025.

What is next for CAY?

• Rail/Port Deal
• Offtake agreements
• Financing deals
• Updated BFS

Next we will share our full CAY Investment Memo where you can find:

• What CAY does
• The macro theme for CAY
• Our CAY Big Bet
• What we want to see CAY achieve
• Why we are Invested in CAY
• The key risks to our Investment Thesis
• Our Investment Plan

Investment Memo: Canyon Resources (ASX:CAY)

Memo Opened: 10th of January 2025

Shares Held: 2,307,692

What does CAY do?

Canyon Resources (ASX:CAY) is developing one of the largest undeveloped, high grade direct shipping bauxite deposits globally in Cameroon, Africa.

Bauxite is the primary raw-material used in producing aluminium.

What is the macro theme behind CAY?

It takes 4 to 5 tonnes of bauxite to make 1 tonne of aluminum.

Aluminum is lighter than steel - it makes ships, planes and vehicles more efficient and faster.

It is a critical metal in electrification and defense industries.

Demand for aluminium is set to grow over the next decade, which means that the bauxite demand is set to grow too.

However, the bauxite supply market is extremely tight, and the major exporter, Guinea, has flagged the idea of export bans on the bulk material.

Bauxite prices are rising as buyers look to diversify supply sources.

Our CAY Big Bet:

“CAY takes its bauxite project into production is re-rated to a market cap greater than $1BN”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our CAY Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Why did we Invest in CAY?

1. One of the biggest undeveloped bauxite projects in the world
2. A “tier 1” asset with a giant resource and premium quality product:
3. Impending structural changes to the bauxite market
4. Permitting complete which paves the way to production -
5. The new major shareholders of CAY have had success in Africa
6. Compelling project economics, improved by a strong bauxite price
7. Project close to existing Infrastructure

What do we expect the CAY to deliver?

Objective #1: Upgrade/Update JORC resource and revised Bankable Feasibility Study

We want to see CAY upgrade/update its existing 1b tonne JORC resource & 109Mt ore reserve and update its BFS to reflect these new results.

Milestones

🔄 Drill results

🔲 Resource upgrade commenced

🔲 Resource upgrade completed

🔲 Update/revise BFS

Objective #2: Progress project financing & offtake

We want to see CAY lock in offtake and subsequently get project financing arranged to fund the CAPEX for developing its project.

Milestones

🔲 Offtake agreements

🔲 Debt/equity funding deal #1

🔲 Debt/equity funding deal #2

Objective #3: Finalise necessary infrastructure upgrades/builds

We want to see CAY finalise rail and port access agreements ahead of any required upgrades to infrastructure.

Milestones

🔲 Finalise rail access agreements

🔲 Finalise port access agreements

🔲 Finalise infrastructure upgrades

What could go wrong?

Development risk

The challenge with Bauxite mines that sit in-land like CAY’s is that they need to have well-built out infrastructure for the projects to be considered economically viable. Cameroon has recently made some upgrades to it’s rail infrastructure but to support a project like CAY’s will need to make more investment. There is a risk this is delayed or does not materialise and the project is deemed stranded.

Technology risk

Aluminium is recyclable, and with an increased focus on improving recycling technologies, there is a risk that demand for new aluminium is met by recycling and therefore demand for new bauxite ore is diminished.

Geopolitical risk

While we believe Cameroon’s current political climate is stable, there have been four coups in the last 4 years in the West Africa region. CAY’s project is subject to the volatility of doing business in this part of the world. Geopolitical risks form a significant part of CAY’s overall risk profile.

Funding risk/dilution risk

CAY’s project is nearing a Final Investment Decision (FID) meaning the company needs to secure project financing to get into production. Project financing can come in many different forms including equity which would dilute existing shareholders ownership of the project. Dilution may cap the upside on the share price depending on the number of shares that are issued as part of the financing round.

Commodity price risk

CAY’s project is at the BFS stage, meaning it is highly sensitive to changes in underlying commodity prices. If the bauxite price were to fall it would hurt overall project economics and make it harder for CAY to lock in project financing for the development of the project.

Market risk

There is always the possibility that broader market sentiment gets worse and shares as a whole trade lower. In this scenario we would expect CAY’s share price to re-rate lower.

Development/delay risk

Should any or all of the above risks materialise, CAY could wind up stuck in “development purgatory” where newsflow dries up and the project remains stagnant for a prolonged period of time, hurting the share price.

What is our Investment Plan?

We invest in later stage companies with a view to hold for 4 to 7 years.

Our plan is to hold a position in CAY to see it into production.

Any sell downs will be in accordance with our trading and hold policy disclosure.