b/s sp cycle, page-16

Er6n,

Once again. Depreciation and Amortization are not real cash outlay items for the current period. They do not represent a cash drain on current cash flow, that money has been spent already yrs ago. It is simply a method to claw back previously spent money on assets ie money spent yrs ago not now.

Depreciation and Amortization can generate a loss for tax purposes true. This loss generated though can be carried forwarded to other periods and utilised in a future income year to minimise tax (which is good).

As AGO is in its early capital intensive stage and is currently writting off at least one mine with a short mine life, having a large D & A to claw back capital outlays on that mine makes sense.

As your post states AGO has all in costs to China of about A$75. It is important to note that AGO quote their all in costs in Australian Dollars not US$. So when looking at the FE price the important thing is to convert all in costs to US Dollars which is currently about US$69.5. Even at current Fe prices and after deductions for grade they would appear not to be cash flow negative yet. So when you say, "As for now they are not making any money", it is incorrect. They are probably not making a Tax Reportable Profit, but they are certainly dont appear to be running at a negative cash flow. Things are getting tight though.

IMO a negative cash flow would be far more worrying then a accounting generated Taxable Loss because of Depreciation and Amortization. But using it as you do is great to scare people if your shorting!

As others have stated this current storm is Chinese Finance related. The question is not how low will the FE price go, it is when will it bounce back. The chart below shows that there must be enormous pressure on Chinese miners at present. At current prices about 70% of producers must be running at a loss. How long will that continue before that supply is removed from the market?