Ann: Anglo American Agreement, page-49

Nice work.

Can definitely see some alignment with th RKEquity analysis.
However, I think you still need to include the US $55 freight to Asia and port and handling charges though, which takes the cost up closer to the US $110 that RKEquity used.

Iron ore spot price is quoted at CIF (cost, insurance, freight). It’s going to cost someone to transport it overseas and Anglo would be selling the product on to their customers in China/Asia, so they need to make a margin on it too.

So let’s say the spot price is US $180, Anglo wouldn’t pay MGU the full US $180, then pay another US $55 on top of that for port and freight costs, a total cost to them of US $235, only to sell it to their customers at the spot price and make a US $55 loss on every sale.

I’m not aware of what margins Anglo typically make in their operations, but somewhat more realistically, at a spot price of US $180 and FOB cost to MGU of US $63 as you calculated, Anglo would pay MGU say US $100, then Anglo incur $55 handling and freight (total cost to Anglo of US $155) and then sell it on to their customer at the spot price of US $180.
In this example, Anglo make US $25 profit per tonne and MGU make US $37 profit per tonne.

I’m sure the freight/ handling cost for Anglo wouldn’t be so high and I’m happy to be corrected on this assumption of cost breakdown if I’m wrong, but I believe this is why the falling spot price currently would be so critical to the current negotiations and why I think they’ve pushed the exclusitivity date out another nearly 3 months, to allow time to see what the IO price does between now and then.
If the IO price falls another 30 or 40% it makes far less economic sense to go into business together, at least for phase 1 DSO.