Canyon Resources — Breaking down the investment case

Canyon Resources (ASX: ASX:CAY)

Last close As at 13/12/2024

AUD0.17

−0.01 (−2.86%)

Market capitalisation

AUD241m

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Research: Metals & Mining

Canyon Resources — Breaking down the investment case

Canyon Resources, an ASX-listed exploration and development company, is advancing the high-grade, large-scale Minim Martap bauxite project in Cameroon. Minim Martap, a feasibility-stage project, is set to become an important independent source of low-cost bauxite for the fast-growing seaborne market. While we are planning to initiate full coverage of Canyon Resources soon, in this note we focus on the key elements of the company’s investment case – attractive project economics, favourable bauxite market fundamentals and supportive cornerstone shareholder.

Written by

Andrey Litvin

Energy and Resources Analyst

Metals & Mining

Canyon Resources

Breaking down the investment case

Metals and mining

Spotlight - Update

16 December 2024

Price

A$0.17

Market cap

A$241m

Share price graph

Share details

Code

CAY

Listings

ASX

Shares in issue

1.42bn

Net cash at end September 2024

A$20.3m

Business description

Canyon Resources is an ASX-listed exploration and development company, advancing the Minim Martap bauxite project in Cameroon. Minim Martap is a long-life, high-grade bauxite deposit with 1,027mt in combined mineral resources at 45% alumina and 3% silica. The project was granted the mining licence in September 2024 and the updated BFS is due in Q125.

Bull

Attractive project economics, new independent bauxite supply

Fast growing bauxite market, rising bauxite prices

Supportive cornerstone shareholder

Bear

Political risk in Cameroon

Pre-production mining project

Opaque and highly vertically integrated nature of the aluminium industry

Analysts

Andrey Litvin

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5700

Canyon Resources is a research client of Edison Investment Research Limited

Canyon Resources, an ASX-listed exploration and development company, is advancing the high-grade, large-scale Minim Martap bauxite project in Cameroon. Minim Martap, a feasibility-stage project, is set to become an important independent source of low-cost bauxite for the fast-growing seaborne market. While we are planning to initiate full coverage of Canyon Resources soon, in this note we focus on the key elements of the company’s investment case – attractive project economics, favourable bauxite market fundamentals and supportive cornerstone shareholder.

Historical financials

Year
end

Revenue
(A$m)

EBITDA
(A$m)

PBT
(A$m)

EPS
(A$c)

Gross cash
(A$m)

P/E
(x)

06/23

0.0

(4.4)

(5.0)

(0.5)

10.7

N/A

06/24

0.0

(9.4)

(9.5)

(0.8)

22.2

N/A

Source: Canyon Resources

Long-life, high-grade bauxite deposit in Cameroon

Canyon Resources is developing a long-life, high-grade Minim Martap bauxite project in Cameroon. It has a large compliant mineral resource of 1,027mt and proved reserves of 109mt at 51% Al2O3 and 2% SiO2. A bankable feasibility study (BFS) published in mid-2022 envisaged production of 6.4mtpa of bauxite averaging 51% total alumina and low silica of 2% for the first 20 years of operation at a C1 cash cost of US$24/t and initial capex of US$253m. In September 2024, Minim Martap was granted a mining licence, a major milestone that demonstrates government support. The project focus has since shifted towards upgrading the resource base and reserves, with additional work being undertaken on the infrastructure solution that includes upgrading the existing rail line and building a transhipment operation at the Douala port. These work streams will feed into an updated BFS that is due in Q125.

Anchor shareholder committed to build the project

Approximately 42% of the company is owned by Fortuna Holdings, a family office based in Singapore and Dubai. A prominent mining investor, Fortuna is a long-term shareholder committed to bringing the Minim Martap project into production.

Rising bauxite prices, strong industry fundamentals

Recently bauxite prices have risen sharply on the back of export disruptions from Guinea, the largest seaborne supplier of bauxite. With its long-life, high-grade project in Cameroon, Canyon is well positioned to reduce dependence on Guinean supply, allowing for more diversified and robust bauxite market. In the long term, bauxite demand is underpinned by the growing use of aluminium in the energy transition industries such as electric vehicles, electronics and green energy. At an average FOB price of US$45/t, the 2022 BFS estimated Minim Martap’s NPV8 at US$452m. Given the project’s premium product spec, the current spot benchmark price of c US$90/t (CIF China, 45% Guinea) bodes well for Canyon’s valuation.

Five key themes investors should consider

Below we discuss the key elements of Canyon’s investment case and share-price catalysts.

High-grade independent bauxite project with attractive economics

Canyon’s Minim Martap project in Cameroon has the potential to become an important independent supplier of bauxite to the international market. In mid-2022, Canyon released the results of the BFS, which envisaged a direct shipping ore operation producing up to 6.4mtpa of high-grade bauxite averaging 51% total alumina and low silica of 2% for the first 20 years of operation. It is underpinned by the large compliant mineral resource of 1,027mt at 45.3% AL2O3 and 2.7% SiO2, with proved reserves of 109mt at 51.1% AL2O3 and 2% SiO2, representing only c 10% of total resources. The project’s capital cost was estimated at US$253m, including rail upgrade, rolling stock and port transhipment solutions, while its C1 operating expense was indicated at US$24.0/t. At an average FOB bauxite price of US$45/t, compared to the current spot benchmark price of c US$90/t (CIF China, 45% Guinea), the project’s pre-tax NPV8 was estimated at US$452m on a 100% basis. We note that thanks to its high-grade nature and low silica content, Minim Martap’s product should attract premium pricing compared to benchmarks.

An upcoming updated BFS is an important near-term catalyst

In July 2024, Canyon was granted a mining convention followed by a mining licence in September, a major milestone highlighting strong support for the project from local authorities. The licence is valid for 20 years with an opportunity to renew, while the development work is required to start within two and production within five years. The project focus has since shifted towards additional resources definition to further increase the size of the resource base and to upgrade reserves. Additional work is being undertaken on the infrastructure solution that, given the conventional free dig nature of the mining operation, is a crucial part of the overall development. It entails upgrading the existing rail line and building a transhipment operation at the Douala port. The company is negotiating rail and port access agreements and is set to receive A$35m via options upon signing from its key shareholder. Updated infrastructure studies and mineral resource estimate will feed into the upcoming updated BFS, due in Q125, providing up-to-date operating and capital cost estimates. In the meantime, Canyon continues to build out its technical team in Cameroon, positioning itself for future development of the project.

Strong bauxite fundamentals underpinned by growing aluminium demand

While historically the aluminium market had a high degree of vertical integration, with the increasing number of independent refineries and stricter environmental regulations, the international and seaborne markets for bauxite has been on the rise. China, by far the largest global consumer of bauxite, imported record 142mt in 2023, up 13% y-o-y, with the majority of supply coming from Guinea and Australia. The seaborne bauxite market reached 177mt in 2023, a 16% increase just over two years. In addition to the above factors, the increase in bauxite trade and demand is underpinned by the growing consumption of aluminium, in particular in China, driven by its use in the energy transition industries such as electric vehicles, electronics and green energy. In the nine months to October 2024, global primary aluminium production grew c 3% (China +4%) to 61mt and industry sources suggest that energy transition may require some 15–22mt in additional aluminium by 2030. This growth should continue to support bauxite demand.

Bauxite prices are on the rise, supporting valuation

Bauxite prices have been gradually rising since the end of the COVID-19 pandemic, averaging US$75/t (CIF China, 45% Guinea) year-to-date compared to a c US$45/t trough in 2021, driven by growing demand, the bauxite export ban in Indonesia and production curtailments in China. This growth has recently accelerated with prices exceeding US$90/t in December on the back of the supply disruptions in Guinea, providing support to Canyon shares, which have reached their highest levels in five years. With its deposit in Cameroon, Canyon is well positioned to alleviate reliance on Guinea, building a more robust and diversified bauxite supply.

An equity market for independent bauxite producers is almost non-existent, with Canyon shares representing an attractive opportunity to gain exposure to the fast-growing bauxite market. While not a perfect comparator, one of the closest peers for Canyon is Metro Mining (ASX: MMI), which is valued at c A$380m compared to c A$240m for Canyon. Metro is an Australian bauxite producer with annual output of c 6mt (wet) and mineral resources of just 119mt at 49% alumina and relatively high silica of 14% (cf 3% for Canyon). Canyon is well capitalised and had cash of A$20m at end September 2024. These funds will allow the company to advance Minim Martap to the updated BFS stage, which should be an important near-term catalyst for the stock.

Cornerstone investor with an intention to build the asset

Canyon has a strong backing from Fortuna Holdings (Eagle Eye Asset Holdings), which currently owns a 42% stake in the company. A family office based in Singapore and Dubai, Fortuna is a prominent mining investor with interests in Canyon Resources, FG Gold, Fura Gems and Prospect Resources among its investments. It is a long-term investor that has been gradually building its ownership in Canyon via on the market share purchases and is committed to bringing the Minim Martap project into production.

General disclaimer and copyright

This report has been commissioned by Canyon Resources and prepared and issued by Edison, in consideration of a fee payable by Canyon Resources. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Canyon Resources and prepared and issued by Edison, in consideration of a fee payable by Canyon Resources. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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