rio deal, page-6

well you would think that the iron ore jrs should start to get more support now that the RIO/Chinalco deal is off, basically if the Chinese want in they have to supply the capital to develop the smaller plays.

you would think that AXO, AGO, MMX, MGX, GBG etc would be the most leveraged to the need for Chinese capital, out of these AXO is the cheapest by a long way.

if they can get the capital for the funding of the $1b capex then $0.23 is very cheap.

lets say they do manage to pull some sort of deal off and secure funding etc then there is no reason this stock cant be $2+ in a very short time.

im guessing that they will do something similar to GBG, ie sell off shares in AXO to Hebei at say $0.60 for $150m and then use those funds as AXO's equity contribution to fund balla balla.

to do this they have to give up some of the project, the million $ question is how much and at what price.

i would be happy with a 50/50 JV and the Chinese provide the capital and debt to get it off the ground.

on that basis, with a fines price of $61 USD per tonne (USD/AUD = $0.75, @58% FE), then the JV should make around $200m AUD profit. So AXO would make around $100m EBIT.

with say 450m shares on issue you could see AXO trading at 4xEBIT = $0.90 on a conservative basis.

The thing will always have a takeover premium as i expect AXO would look to sell out of the JV and then apply the cash to do something else or increase production, either way Hebei would be the natural buyer.

it still makes AXOG look attractive.