CAY’s bauxite project is well advanced with a PFS completed and the BFS currently being delivered. With a JORC resource in place and a maiden ore reserve announced CAY can quickly make a final investment decision after the BFS is completed.
ASX:CAY
Last Price:
$0.055
Date of Initial Coverage
14-Feb-22
Initial Entry Price
$0.100
Returns from Initial Entry
-45%
Opened: 14-Feb-2022
Shares Held at Open: 3,000,000
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?
Aluminium is considered a “green metal” due to its infinite recycling capacity & long-lifespan.
It is also considered a critical industrial metal in all manufacturing settings because it is both light-weight and strong. It is also a critical material in the primary technologies that will be the foundation of a low-carbon future including wind power, solar and energy storage (batteries).
More recently, the EU also recognised aluminium as a strategically important material in supporting the transition towards a modernised greener economy.
Why did we invest in CAY?
Advanced development ready project
CAY’s bauxite project is well advanced with a PFS completed and the BFS currently being delivered. With a JORC resource in place and a maiden ore reserve announced CAY can quickly make a final investment decision after the BFS is completed.
One of the largest high-grade Bauxite projects in the world
CAY is developing one of the largest undeveloped, high grade direct shipping ore (DSO) bauxite deposits globally. The project has a JORC Resource of 1 Billion tonnes at 45.2% Alumina with a low silica content (~2%) which makes it ideal for aluminium production.
Solid project economics
Stage 1 development of CAY’s project based on a 5 mtpa DSO operation was modelled in a PFS in 2020 showing a post-tax NPV of US$291m, IRR of 37% with a 4.2 year payback period and CAPEX of US$120m.
DSO style mining methods meaning a fast mining ramp-up stage
Bauxite is a unique commodity in that it is sold as a raw-material with very little processing work done on it. Mining methods are generally very simple, with the Bauxite being dug up, stock-piled and shipped directly to purchasers without any processing. As a result production rates can be ramped up very quickly.
What do we expect CAY to deliver?
Objective #1: Mining convention converted into a mining permit.
Objective #2: Bankable Feasibility Study (BFS)
We want to see the BFS completed and a move into the final investment decision/project financing stage. We are hoping to see this completed in the first half of 2022.
Objective #3: Bankable Feasibility Study (BFS)
We want to see the BFS completed and a move into the final investment decision/project financing stage. We are hoping to see this completed in the first half of 2022.
Objective #4: Final Investment Decision and financing
In order to get the mine operational, CAY needs to make a final investment decision along with some progress on financing the project.
Objective #5: Strengthening of the in-country team to aid project into development
We want to see CAY strengthen its in-country team so that there is project delivery experience from financing all the way down to operations.
What could go wrong?
Permitting risk
There is a risk the mining convention negotiations fall through and CAY are not granted the mining permits. Given there are a lot of specifics related to the permitting process, we believe this is the single biggest risk for CAY at the moment.
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 never materialises and the project is deemed stranded.
Commodity pricing
Bauxite prices are historically un-correlated with the price of aluminium, with demand for aluminium increasing there is a risk that bauxite prices lag or fail to respond to increased demand higher up in the supply-chain.
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.
Geographic 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
CAY’s project is located in Cameroon which is still a developing mining jurisdiction, there is a risk that the company fails to attract development financing with investors thinking the geopolitical risk is too high. In addition in the short term, CAY is reliant on tapping the market for funds as it moves toward bigger financing rounds.
What is our investment plan?
At Wise-Owl 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.
As with all our new investments, we have a 90 day trading blackout. After 90 days we are allowed to sell a maximum of 20% of our total position.
We may look to sell ~20% of our position late in 2022 if the share price re-rates as the objectives we want to see are achieved.
Disclosure: The authors of this article and owners of Wise-Owl, S3 Consortium Pty Ltd, and associated entities, own 3,000,000 CAY shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by CAY to share our commentary on the progress of our investment in CAY over time.
✅ Initial Investment: @10c
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🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
| Date | Share Price $ | Title |
|---|---|---|
| 13-Jul-2022 | $ | CAY Goes Again after BFS, New CEO and a Surging Bauxite Price |
| 05-Mar-2022 | $ 0.088 | Mainstream Media Catching on to the Commodities Supercycle |
| 28-Feb-2022 | $ | 15 Ministries now signed off on CAY’s Mining Convention - Final Sign off by Government Next |
| 26-Feb-2022 | $ 0.000 | The War Begins, Cybersecurity, Food Security, Energy Independence and Precious Metals |
| 21-Feb-2022 | $ 0.000 | Why we invest in Oil & Gas and Precious Metals |
| 14-Feb-2022 | $ | Introducing our Latest Investment: ASX:CAY |
General updates from CAY