First Bauxite on Resource Intelligence TV
First Bauxite to Submit FS by April, Acquires Vast Tracts of Bauxite Land
Yannis Tsitos is the President of an intriguing company with a commodity that has compelling price dynamics. The commodity is Bauxite. Refractory Grade Super Calcined Bauxite or RASC. To educate us on the commodity and his project in Guyana, we spoke with First Bauxite’s (TSXV: FBX) President and director Yannis Tsitos. Yannis worked for most of his career—18 years—with BHP Billiton as chief geophysicist for South America and business development manager for their exploration team with a global reach.
Resource Inteeligence: How did First Bauxite come into possession of such a large swath of high-grade bauxite property in Guyana?
Yannis Tsitos: I met Hilbert Shields in 2006. Hilbert Shields is the CEO of First Bauxite Corporation. He was the original vendor and owner of the properties in Guyana. We analyzed bauxite, the opportunity, the economics of the project, the quality and technical information of the project. I had long discussions with Hilbert analyzing the country and the refractory business and we came to the conclusion that this is an amazing opportunity and that we had to jump in.
RI: What is bauxite?
YT: Bauxite is the prime source of aluminum metal. Ninety to 95% of the world’s bauxite becomes aluminum metal. The other five to ten percent of global bauxite is used in large industrial applications such as the construction of refractories. Typically, only high alumina bauxite goes into this application. Therefore the business of refractories is very well known among the engineering industry.
To put it simply, you use refractories to keep the heat inside a furnace.The construction of refractories is absolutely necessary for the production of steel, cement, or any pyrometallurgical process that you use to melt or have some chemical reaction in a kiln or furnace. However, in order to manufacture refractories you need to use high-alumina, low iron-oxide bauxite, with no alkalies. As such, more than 95% of the world’s bauxite is unfit to make refractories. It’s a unique product; you need to have the original source of high quality and high alumina content and that is what we have at Bonasika and Waratilla.
RI: Guyana is one of the world’s major centers for this type of RASC bauxite. There are others in Africa and elsewhere. How much supply is there and what could you contribute with these deposits?
YT: As it stands at the moment China consumes 70% of the world refractory bauxite for its own needs. The balance of the bauxite produced in China or in Guyana is for export purposes. Export to Europe, United States, Japan, Australia, and India, etc. China has managed to control about 90 to 95% of the world production of refractory bauxite. The balance of production comes from Brazil, India and Russia, where we’re talking about captive markets in that what they produce, these countries use internally.
RI: Is China setting the price floor for bauxite?
YT: Yes, because China produces the vast majority of bauxite in the world, it does tend to set the floor price in its exports of refractory bauxite. That being in the order of $400 to $500 per tonne for RASC bauxite.
RI: Let’s talk about your projects and the size of the deposits that you’re targeting.
YT: We have three different projects in Guyana. Two of them are advanced projects. One of them, Bonasika, is now at the Feasibility Study stage, which we are probably about 80% complete. We expect to receive it as a Board of Directors by the end of Q1 2010 and announce its results immediately afterwards.
Our intention is to begin production at Bonasika within 15 to 18 months from the time we press the button to develop the project, and that will happen in the next two months, at the rate of 100,000 metric tonnes of refractory calcined bauxite production per annum.
The second deposit is the Waratilla-Cartwright deposit, which we are currently drilling to outline a larger resource. Bonasika is what we call low hanging fruit. It has very little overburden and is very high quality in terms of alumina content and low iron oxide.
RI: You’ll be producing 100,000 metric tonnes per year at Bonasika and China has set a price of $400 to $500 per tonne for RASC bauxite. What about the operating costs?
YT: Operating costs come in at less than $200 per tonne at the moment but until we have a completed Feasibility Study in the next six to eight weeks that operating cost can not be verified. But we feel very comfortable; all metallurgical tests are working fine. We’re confident that it will be under $200 per tonne and therefore the profit margin given the prices we mentioned could be at least 100%.
RI: You’ve got low hanging fruit at Bonasika; how far from Bonasika is Waratilla and to what extent is it low hanging fruit?
YT: What we know about Waratilla is mostly from historical drilling by Alcan in the 1960s. It has been proven to be five times bigger than Bonasika. At Waratilla we are drilling about 2 holes a day right now. Drilling bauxite is like going through butter—you drill 40 to 50 metres depth and you drill about 2 holes a day with one drill. Waratilla is much bigger but it’s at greater depth than Bonasika, so the strip ratio at Bonasika we expect to be between 1:1 and 3:1 on one of the parts of Bonasika, the strip ratio at Waratilla is going to be definitely higher but still super economic. But to put this into perspective, in comparison to their operations in Guyana, a local Chinese company operates at higher than 7:1, and and RUSAL, exporting metallurgical bauxite from Guyana, operates at 9:1 to 10:1.
RI: It sounds like your target resource size on Bonasika will be in the order of a couple million tonnes, and five times that at Waratilla.
YT: That’s what we’re hoping. That’s why we put out to the public that the mine life at Bonasika will be about 8-9 years at 100,000 tonnes production per annum, but in year two or three, depending on financing, we will expand the operation. We believe we have enough resource at Waratilla to move to 300,000 or 500,000 tonnes per annum in total. That will happen only when Waratilla comes to the market, obviously.
RI: I am getting the picture of this small company having a lot of success surrounded by some huge Chinese operations.
YT: China controls 95% of the world market and they are our neighbors in Guyana. As I said we will export just 45 km from the Atlantic while they operate 110 km from the Atlantic, and they are more complicated and have higher operating costs than us.
RI: If you take this all the way to production who would you sell your product to?
YT: We are already in active direct and indirect talks with consumers. These are the companies that buy high quality refractory bauxite based in the United States, Europe and in Japan. We hope to have marketing agreements and contracts for effectively sending out product right away.
RI: When do you plan to be shipping product?
YT: Subject to having a positive feasibility study and financing very quickly after that, we are hoping to see the first product in June or July of 2011.
RI: Outside of your main two deals Bonasika and Waratilla, you have another project on the go with Rio Tinto. What are the details of that joint venture?
YT: First Bauxite Corporation controls 100% of 6,000 square km of prime bauxite land. We thought we would farm out the exploration to a major corporation. Rio Tinto ALCAN is a fabulous partner and we did a deal with them back in May 2008 where in order to vest an interest in our project they have to spend $58 million in exploring this ground in two phases. $8 million has to be spent to earn 51% of the project and then a feasibility study must be completed, which is about $50 million for a good metallurgical bauxite project. Rio Tinto is not involved in the refractory business. The target for Rio Tinto in Guyana is to discover a major metallurgical bauxite resource. If they spend all $58 million they will have 75% and we will retain the remaining 25%.
RI: You just announced a new major acquisition of some 15,000 hectares in two historical prospecting licences by acquiring a company called Bauxite Corporation of Guyana (BCGI). What is the significance of that deal?
YT: We acquired all the shares of BCGI and in doing so also receive these two prospecting licences from the company that cover an historical bauxite deposit named Tarakuli, in Northeastern Guyana. BCGI had also submitted to the Guyana Geology and Mines Commission applications for three additional Prospecting Licenses, covering an area of 15000 hectares contiguous to the Tarakuli deposits. Reynolds Metals drilled Tarakuli in the 1960s and their data shows an historical non-43-101 compliant inferred bauxite resource of approximately 63 million MT at 58.6% alumina. Half of the tonnage was classified as metallurgical grade bauxite and half as chemical grade bauxite. This is such huge area that we will have to carefully choose our targets. But I want to be clear that our first priority right now is to advance the Bonasika and the Waratilla projects project to production.
RI: What is Guyana like as a mining environment?
YT: Guyana is a fabulous place as a mining environment to do business. They are very mining friendly. A significant part of Guyana’s GDP is the export of bauxite and gold. Bauxite has been mined in Guyana since 1917. It was the third country in the world to discover and export bauxite. The country’s Prime Minister is also the Minister of Mines. He used to be a chemical engineer working for Alcan in the 1960s, so he understands the importance of mining to his country.
RI: It sounds like you have a lot going for you in the country as well as on the project.
YT: True. If you have an aggressive plan like First Bauxite Corporation you have to deal with all the aspects of the business from managing the project risk and building a team that is very competent around you, that knows the refractory bauxite business. That is what we are doing at the moment.