consoling view, page-11

This was from Ocean today - note that they think UMC is fine at HALF the present IO prices ...

United Minerals Corporation
Iron Ore Sector Update - Implications for UMC
News
Concerns continue to emerge that China's demand for steel is slowing down resulting in reduced demand for iron ore and a downward revision in consensus expectations for JFY08/09 contract prices.
Recent news flow out of China is of contracting steel prices and production, increasing stock piles of iron ore (which we believe is predominantly lower grade domestic/Indian ore), and reduced freight costs which has resulted in the iron ore spot price contracting below the current contract price.
Indeed commentary from Mount Gibson Iron yesterday that a number of Chinese customers have requested delays in shipments scheduled for 2Q'09 has led to a significant sell off in the iron ore sector, best evidenced by Fortescue's share price collapsing to A$2.68 (only a couple of months ago ~A$13).
Implications
While we believe recent developments for the sector are concerning in the near term, a number of factors fundamentally support the Australian iron ore in the medium/longer term:
• Differentiation of product. We believe a significant portion of the increased stock piles are of lower grade domestic ore / Indian ore resulting in China reducing imports of lower grade (ala 58%). We believe these stock piles still require blending with higher grade Brazilian/Australian ores, so demand for premium products will hold up better in a decline in demand in the near term. Furthermore we highlight the continued decline in domestic/Indian ore will only increase China/India's reliance on higher grade ore and we believe high grade plus 60% ore is saleable in any market, and the premium price paid for premium products will increasingly become evident in the medium/longer term.
• Net realised iron ore price environment for the Australian sector. While in a bear market we would expect investors to focus on the contract in headline iron ore pricing it is worth highlighting that the net realised price Australian producers receive has significantly benefited from the sharp contraction in the AUD, which has collapsed ~30% from $0.98 to $0.67.
• The industrialisation and urbanisation of China. While the slow down in Chinese demand for commodities has been larger than expected following the Olympic Games it is worth highlighting that Chinese government continues to support the industrialisation and urbanisation of the country. The industrialisation of the UK took over 60 years and China still remains in the early stages albeit with a materially larger scale. Therefore we believe the fundamental outlook for iron ore remains robust and high quality projects will be in high demand.

Implications for UMC
UMC's Railway Deposit stands out from its peers because of its grade - including a high grade DSO resource of 84.5mt @ 60.3%. We believe demand for this quality ore remains robust and ore of this grade will find a path to market.
We expect the revision of UMC's resource calculation for its Railway Deposit following the receipt of infill assays (including 117m @ 63% as announced last week), will further extend the core high grade zone and possibly significantly increase the tonnage and grade of the high grade DSO resource.
As evidenced in our recent UMC note we believe the economics of the Railway Deposit are robust - even if iron ore prices halve, and that high grade 60%+ Marra Mamba ore is saleable in just about any market.
At UMC's current share price we believe the company offers an attractive risk/reward opportunity despite the current significant macro uncertainties.
Comments by Sam Spring, Mining Analyst