Ann: Dividend/Distribution - GRR, page-94

A few things about South Down that we should consider - and I think the feasibility study will consider these as well. These are not alien points and I am sure that we have all mulled them in our minds since the change of wording in GRR announcements on Southdown.

1) GRR owns 70% of the project and have a stated aim of producing 5mil tonnes pa. Given that the total resource is 10 mil tonnes, then it would appear that they are no longer chasing the prospect of selling off 40% of the project. There may be no additional funds coming in to kick start the project.
2) The above does make sense of GRR's inability of off-load the 40% when IO prices were at record levels. It does indicate that GRR was always going to go it alone. Even if they were to sell off the 40%, they would get much less for the resource now.
3) Given that they have not managed to extricate themselves out of the RE venture, maybe they are asking too much for the 40% in SD - though, they may be waiting ror RE prices to go up further to increase the profit margin.
4) Development of Southdown will take a few years - it will not happen over night. GR will not have the funds (assuming there is no selling of the 40% in the original plans) and will have to borrow heavily in order to go forward with development. Any borrowings are never a good thing and it would also mean the suspension of any dividends for the period of the SD development.
5) Maybe, the plan will include selling off the 40% once the project is in a more advanced state - easier to sell and they would get a premium for the project being more advanced. Will they be forced to do this anyway?
6) IO price - will this remain where it is or go up significantly - will it fall? This is the great unknown. Three years from now, the IO price may be down and that makes the whole SD project less attractive.

No doubt, the feasibility study due at the end of the year will cover these aspects. Thing is, that no one should predict with certainty that the project will get off the ground at this point. If the feasibility study results turn out that the SD project is too expensive and the returns are not adequate, what does that mean - will GRR still hold on to the asset waitin for better times or will they try to off-load it all together maybe at a lower price?

The results of the feasibility study will be very interesting. If IO prices do dip by the end of the year, then I suspect that GRR will not go ahead with the project - and logic indicates, they should not either.