The critical mineral no one's watching (and our #1 ASX small cap pick)

Bauxite has been one of the best-performing commodities over the past 2 years, with Australian bauxite prices rising over 70% to highs, yet it remains largely overlooked by investors. This is primarily due to the limited investment options available on the ASX—driven by a scarcity of high quality pure-play bauxite companies—and its common treatment as a non-core asset within larger diversified miners.

The price per tonne of bauxite briefly surpassed that of iron ore in December 2024. Why?

China is running out of bauxite.

Like iron ore, China is running out of bauxite that it can produce domestically. Chinese mines operate at significantly lower grades than offshore peers, and reserves are dwindling—production declined by 20% last year, according to Morgan Stanley.  However, given how energy-intensive it is for smelters to produce aluminium, China still dominates the downstream aluminium market.

This creates an ever-increasing reliance on importing bauxite from Africa and Australia. China currently imports 70% of its bauxite requirements, with Guinea accounting for 74% of these imports and Australia supplying 22%.

Chinese bauxite imports have grown at 25% CAGR over the past 20 years.

Chinese bauxite inventories are typically built at this time of year (May through October). However, Indonesia’s ongoing export ban, coupled with unreliable supply from Africa, means prices look set to continue increasing. 

What's unreliable about Guinean supply? 

Guinea is facing heightened political instability after its ruling military junta missed a promised January 2025 deadline to restore civilian rule, triggering opposition protests, international condemnation, and a government crackdown on dissent. A bauxite mine owned by Emirates Global Aluminium has been idle for over 200 days after the military junta government shut it down, and there are media reports (9th May) that they're being forced to exit the country after failing to fulfil the government's requirements.

On 15 May, Guinea revoked 46 mining licenses (see here), cracking down on mining operations, which could affect up to 40Mt of bauxite supply capacity (per Mysteel). After adjusting for the portion that is currently active, the potential disruption is on par with Indonesia’s export ban—but this time, there’s even less flexibility to pivot toward alternative supply sources.

Demand for bauxite is intrinsically linked to demand for aluminium. Given aluminium is substitutable with copper, demand is correlated to global GDP growth, which may benefit from Trump rolling back global tariffs.

When the market sentiment goes 'risk-on', industrial commodities like copper and bauxite have historically outperformed as investors rotate out of high-performing precious metal hedges into these discounted, pro-cyclical exposures.

Given the dearth of high-quality development projects, with an additional 39 Mtpa of bauxite supply required by 2035, we struggle to see how demand will be met.

Except for...

How to invest in bauxite on the ASX

Bauxite is the unsung hero of the Australian resources sector. The aluminium industry contributes $18 billion annually to the Australian economy and supports over 75,000 jobs. For reference, that's bigger than the contribution made by copper or lithium.

On the ASX, we see 4 primary ways (of meaningful scale) to play bauxite on the ASX.

1. Rio Tinto (ASX: RIO) / Alcoa (ASX: AAI) / South32 (ASX: S32)

Like iron ore, Australian bauxite production is primarily a job for the major miners due to the scale and logistics benefits associated with producing bulk commodities.

However, these major miners are either primarily focused on downstream aluminium production (Alcoa) or diversified across commodities to the point of being a trivial driver of earnings, with RIO much more exposed to iron ore and S32, whose revenue pie chart is dominated by base metals. 

Rio's prominent bauxite mines at Gove and Weipa are rapidly depleting and are expected to cease production within five years

2. Metro Mining Ltd (ASX: MMI) | $320m EV.

Metro Mining is Australia's only ASX-listed pureplay bauxite producer. The company operates the Bauxite Hills mine in far north Queensland.

The company should be commended for expanding production from 4.6 Mtpa in 2023 to 6.5- 7.0 Mtpa in 2025. Although profitable, the company has struggled under a high debt burden, with net debt of $44.4 million at the end of March following a refinancing in November 2024. Given this debt position, MMI certainly offers leverage to the bauxite price (shares are up ~30% over the last month).

It's perhaps for more "qualitative" reasons that we've avoided Metro Mines to this point. Historically, they have struggled with operational reliability, frequently impacted by regular, heavy rainfall events that have negatively impacted mining rates (and thus, their ability to meet guidance and market expectations). Most recently, Tropical Cyclone Jasper in 2023 caused the temporary suspension of transhipping activities due to the high waves in the Gulf of Carpentaria. 

3. Canyon Resources Ltd (ASX: CAY) | $452m EV

Canyon Resources is a bauxite developer in Cameroon. It's Minim Martap project has an outstanding (scale + grade) resource of 1 billion tonnes at 45.3% Al2O3.  

The catch is that Minim Martap is ~800km from the nearest port. To ramp up production from 1 Mpta to 6 Mpta, Cayon is relying on the World Economic Bank to upgrade the rail line that would connect its exceptional bauxite to its customers. The company is slated to commence smaller-scale production in 2026.  Like in the Pilbara, bulk commodities are all about logistics. 

In our experience, rail development is often prone to running over time and over budget. If these puzzle pieces come together, CAY will be worth multiples of its current share price.  

We remain hopeful for CAY, but realistic.  This is not Western Australia.  It's Cameroon - a developing nation with a limited history of mining, and little to no mining infrastructure.  We'd point to the shifting mining codes and rising geopolitical risks across West Africa to highlight the risks. 

• Leo Lithium (ASX: LLL) has been suspended since September 2023 amid uncertainty over Mali’s mining code overhaul. 
• West African Resources (ASX: WAF) is facing similar headwinds in Burkina Faso, where a new code is flagged for mid-2025. 
• Resolute Mining (ASX: RSG) had executives detained in Mali as recently as November 2024.
• In Guinea’s bauxite sector, ASX-listed Arrow Minerals (ASX: AMD) is a live example—now suspended from trading after reports emerged that the government has stripped various companies of exploration and mining permits. This is a stark reminder of how fragile ownership rights can be in this part of the world.

Cameroon is seeing some green shoots for its immature mining industry. Rumour has it that big players like RIO are sniffing around for projects in Cameroon and Canyon would certainly be an interesting acquisition target for RIO (or other major) with experience lobbying politicians and managing large infrastructure assets in developing nations. The potential scale and profitability of a project like that would be material, even to a behemoth. But for us lowly small cap investors, we'd like a bit more clarity before investing.

4. VBX Ltd | $57m EV at $0.60 (Upcoming IPO)

VBX will soon be the leading pure-play bauxite developer on the ASX. Its IPO is on Tuesday, 17 June. VBX's Wuudagu bauxite project is in Western Australia.

We have previously discussed our criteria for early-stage mining companies here on Livewire, a process that enabled us to identify Sun Silver (ASX: SS1), which went on to be the top-performing IPO of 2024. 

Guinea-style bauxite, in Australia

Guinea dominates the global bauxite export market thanks to its abundant, high-grade 45%+ Al₂O₃ deposits with very low <2% reactive silica—ideal feedstock for aluminium producers. 

Interestingly, parts of Western Australia share key geological similarities with Guinea, likely due to their historical connection within the Gondwana supercontinent ~500 million years ago. Both regions were once located near the palaeoequator, where warm, humid conditions promoted intense lateritic weathering and the formation of high-grade bauxite.

Not all bauxite is created equal, though, and Guinean spec bauxite typically commands a 20-25% premium over standard Australian material. As David Flanagan (of Atlas Iron and now Arrow Minerals) recently quipped:

“You could just about eat that stuff... It’s like having O-negative that can go anywhere.”

While Australian bauxite is generally lower in grade, it can still compete—if the logistics and impurity profile are right. Reactive silica, in particular, is heavily penalised by Chinese smelters. For example, South32’s Worsley mine in Western Australia operates at just 28.7% Al₂O₃ but remains viable due to its extremely low reactive silica (1.9%) and vertical integration.

As the Pilbara’s success in iron ore shows, grade is only part of the equation. Infrastructure is often the real driver of profitability in bulk commodities. Despite only “okay” ore grades, the Pilbara thrives thanks to world-class rail and port access, as well as proximity to China. That dynamic applies equally to bauxite. Australia enjoys a major logistical edge over West Africa: shipping from Guinea to China takes around 5 weeks and costs ~US$20/t, compared to just 2 weeks and ~US$10/t from Western Australia. That freight savings goes straight to the bottom line and can be reinvested by miners, giving Australian producers a clear margin buffer, especially in a volatile price environment.

Can you have your cake and eat it too?

VBX aims to achieve the best of both worlds, combining Guinea-like product quality with Australian logistics. Starting from a 39.4% Al₂O₃ in-situ resource, the company plans to beneficiate its ore to a 45.4% Al₂O₃ product with just 3.6% reactive silica. That’s far closer to Guinea-spec than typical Australian output—and should command a meaningful pricing premium.

What gives us confidence that a junior company can get this into production?

VBX appears well-positioned to move into production, supported by a strong logistics advantage. Its mining operations are just 40 km from the loading point for large vessels shipping to China, providing a significant freight and efficiency edge. 

For junior miners, low capital intensity is crucial, and VBX could follow a similar path to Fenix Resources (ASX: FEX), a company we've closely followed that successfully entered production by keeping capital expenditures low. Unlike FEX, which hauls ore over 500 km to port, VBX’s ore will travel just 33 km, reducing transport costs and operational complexity. With an estimated capex of $125 million (per its PFS) and a minimal pre-strip requirement (0.2:1 strip ratio), VBX boasts an attractive NPV-to-capex ratio—an important factor for securing favourable project financing and navigating commodity price cycles.

We see significant potential for VBX to expand its resource and future production, with only 48% of target areas drilled to date and minimal exploration conducted between BHP’s work in 1967–1972 and VBX acquiring the ground in 2013–2014. While we don't incorporate anything in our assumptions for it, VBX's earlier stage, second project, the Takapinga bauxite project on Melville island off the coast of Northern Territory, reminds me of Mt Gibson Iron (ASX: MGX)'s spectacular Koolan Island iron ore project, off the northern Kimberley coast of WA.

We're realistic that mining development projects are certainly not risk-free investments. Heritage and environmental approvals will be critical in advancing the project. Over the last nine years, the company has built a strong relationship with the Wunambal Gaambera Traditional Owners on the ground to ensure that the development aligns with environmental and cultural considerations. Wunambal Gaambera are publicly supportive of the project, as per their website. Metro Mining has paved the way here with >30% Indigenous employment.

VBX is, in our view, the most compelling pure-play bauxite developer on the ASX. It has a clear ~ two-year path to production and robust economics even at conservative bauxite prices. However, its IPO price is only ~5% of its potential pre-tax NPV (at spot prices), and we expect it would deliver strong margins throughout the cycle.

Just wondering...

What could VBX’s project be worth to Rio Tinto, given that its own bauxite mines in northern Australia (Gove, Andoom) are running dry? We estimate that buying VBX could boost RIO's ~60 Mtpa bauxite production by 10%. 

RIO generated $1.25 billion in EBITDA in 2024 from its Australian bauxite operations, making the price tag more than manageable, even if VBX were to re-rate dramatically.

As VBX de-risks, we believe it can close the valuation gap with Metro Mining (ASX: MMI), which trades at 7x VBX’s IPO enterprise value. With Guinea-related supply risks driving a ~30% re-rate in (ex-Guinea) peers like MMI and CAY, VBX stands out with the best risk/reward profile in the sector right now.

The Seneca Australian Small Companies Fund is participating in the VBX Ltd (VBX) IPO and holds shares.

Learn more about the Seneca Australian Small Companies Fund here.

Alternatively, we write up two research papers like this each and every month for self-directed investors over at Good Research.