What's new?

In a brief announcement to the market, Australian Bauxite reported that the Tasmanian Government had granted the right to mine at its Bald Hill project in Northern Tasmania.

Granting the mining lease will allow the company to move into the final stages of approval prior to development of the Bald Hill bauxite deposit getting underway.

In a State renowned for its environmental activism, the granting of a mining lease to a mine at Bald Hill would appear to be a landmark achievement for the company. We consider the relationship the company has built-up with the Tasmanian Government and the local communities is extremely important.

The company will soon be seeking additional mining leases for two further sites in Tasmania, in Fingal Rail and DL-130.

Mining at Bald Hill will start on a small scale but significant for the company, with production of direct shipping ore (DSO) quality bauxite of 500,000 tonnes a year.

Production of the aluminium ingredient will be scaled up over the next two years, with a final production target of 2.0 million tonnes of DSO bauxite. The capital estimate to bring Bald Hill into production is only $4.5 million, with an additional contingency amount of $500,000.

Operating costs have been estimated at $28 to $30 per tonne and are expected to decline as DSO volumes reach the 2.0 million tonnes level. Additional savings will be made in transport as the remaining sites are closer to the docks. Based on a bauxite price of $US77 a tonne, operating margins will be robust.

In support of mining, the company's Tasmania joint ore reserve code (JORC) mineral resources stand at 8.7 million tonnes.

Outlook

The company is targeting a total Tasmanian resource of 12 to 20 million tonnes of bauxite it considers can readily be mined.

A broader target of 30 million to 50 million tonnes of bauxite is likely hosted within the company's Tasmanian tenements. Across all its bauxite projects the JORC mineral estimate stands at 115.7 million tonnes of ore.

As the company has been focussed on getting production up and running in Tasmania, exploration has been kept at a minimum.

We expect the company will return to serous exploration with the advent of Tasmanian production.

At June 30, 2014, the company had a cash resource of $2.3 million. Expenditure for the just finished September 2014 quarter has been budgeted at $380,000.

Exploration expenditure is forecast at $150,000, while the forecast for development activities is $100,000. We consider the company has sufficient cash resources to meet all its current commitments.

Price

After a tough few years, the shares have held up well in 2014. The shares recently touched an 18 month high and we expect momentum to continue building.

Worth Buying?

With a 200 million tonne bauxite resource now readily achievable and the road to first production now here, the company will continue to focus on developing its bauxite assets.

We are of the view the positive news released to date by Australian Bauxite is likely to continue throughout the remainder of 2014.

The catalyst for the positive news flow will be the start of production at Bald Hill in late 2014 that should be very supportive of a higher share price. The replication of Bald Hill at Fingal Rail and DL-130 will, we believe, add further upward impetus to the share price in 2015. The shares do though carry a high degree of risk.