Loan Calc, page-25

The debt's gone into expansion initiatives and exploration, but its also been spent on developing large pits and stockpiles. These costs have gone onto the balance sheet as long term assets, to be drawn-down as deeper ore is mined and stockpiles are reclaimed.

But if you can't mine the deeper ore and reclaim the stockpiles because the iron ore price is lower than your production costs you've got to write the assets off the balance sheet. There are 'large' stockpiles of low grade at Wodgina - when AGO stops mining there, what value will it retain on the stockpiles ? Flanagan thinks he can blend them with 'higher grade ore', like he's got stacks of high grade - where, Mt Webber ?

So that's what AGO's been progressively doing - writing-off assets that were only ever on paper, and really could also be considered as mining costs for the ore already mined. The debt has partially been used to inadvertently make their mining costs look lower as the iron ore price has fallen.

I suspect a further fall in IOP will result in further write-downs, especially as AGO's production drops progressively from FY16 = 15mtpa to FY17 = 10mtpa and then FY = 6mtpa, with mining only coming from Mt Webber. Reporting a massive Resource and Reserve but then only mining from Mt Webber should make some ask questions.

Which is why arm-wavy examples of what China or India are building are a bit irrelevent to AGO's current position. AGO's issues are week by week, global development is decadal. And with RIO producing a 1 million tonnes of high grade ore per day I question whether AGO will see the prices they need to be truly happy. And lets not forget BHP's 3/4mt/day, FMG 1/2mt/day (medium high grade), and RH at 1/4 mt/day.