media, page-2

Good find.

I find it very interesting that Exxaro want to be at 10mtpa by 2016. This is only 3 years away.

My understanding is the current railway has a maximum capacity of 10mtpa. To get it to this level it will probably take some significant investment. I think the rail line 'as is' with limited upgrade can do around 4-5mtpa.

This is probably why both companies are targeting early production of 2mtpa each.

Now....if we are to assume that Exxaro are serious about getting to 10Mtpa one would think that taking EQX out is key to this. If the rail can only do 10mtpa, and we know the rail line is to be shared between the 2 companies we are looking at 5mtpa each.

I have always thought that Exxaro would be the logical buyer of the EQX asset. This was not because of the additional resource but more because of gaining full control of the rail infrastructure. The companies have suggested that the rail is 'worth its weight in gold.' If this is the case you would think Exxaro would prefer to control it rather than share it.

I have looked a little closer into Exxaro’s financials today to see if they can afford to buy the Mayoko asset from EQX. Exxaro are a $6bn AUD company with net debt of only 8%. This is extremely low. As a comparison BHP and RIO sit at around 30-40% and they are conservative. Fortescue is at 80%! If they borrowed $300m to take us out their net debt goes to about 14% give or take. Still extremely low. Bottom line is they can afford it and if anything they have a lazy balance sheet in a low interest rate environment. They are in a very strong financial position and given that they know Iron Ore has a brighter future than coal they will want to be allocating capital to where they can make the most money.

As alluded to by John Welborn EQX will be looking to bring in a strategic partner. Once a partner comes in (especially if it is a large company) Exxaro will find it very difficult to consolidate the region. As such IF Exxaro are interested one would assume they would be forced to make their move before EQX sort out financing and begin development.

John Welborn in the article states: "Hopefully, we can forge an alliance with Exxaro that makes sense for both companies in what are a number of challenges that we’re meant to face together,” Welborn said, adding that the company was also in discussions with a number of prospective project partners and financiers."

So if we are already talking to prospective partners and financiers we can assume the window of opportunity for Exxaro to take us out is between now and the end of they year. EQX will want to progress things pretty quickly post scoping study and as such if Exxaro are serious about their growth ambitions in that region I can't see how they would not have a crack. Especially given they have a balance sheet that could quite easily absorb the purchase.

I could be completely wrong, but for me it just makes too much strategic sense for Exxaro to control the whole area. I guess we will know in the next few months if they agree.