Isn't GBG profitable now?, page-13

Good point Stratnew but I 100% appreciate the premium associated with magnetite. Unfortunately you may not have read the most recently quarterly very thoroughly or the previous quarterly's for that matter. Some info to help explain my full appreciation of the premium.

'The full value in use premium on sale of magnetite concentrate (December 2015 Quarter – average USD $2.20/WMT; September 2015 Quarter – average USD $3.45/WMT is shared under an agreement for product marketing and sales between KML and Angang International Trade Corporation; KML’s approximate entitlement to share of the premium was as follows: December 2015 Quarter – average USD $1.32/WMT; September 2015 Quarter – average USD $2.08/WMT.'

It tells us, right there, a wonderful $1.32/WMT premium. So again, 2.5 times the ore to be mined and processed to create a ton of saleable to earn an extra $1.32/WMT. I'm sure the Chinese steel mills are loving it, but they're not paying an extra $10-20/WMT.

Or let's look at it another way, from the RIO quarterly results:

'Approximately 59 per cent of 2015 sales were made on a cost and freight (CFR) basis, with the remainder sold free on board (FOB). Achieved average pricing in 2015 was $48.4 per wet metric tonne on an FOB basis'

So RIO sold it's ore for $48.4/WMT after removing the CFR costs. KML sold it's ore including all premiums for $52/WMT on a CFR basis, again meaning the shipping costs have to be removed from this to calculate the FOB costs for direct comparison with the RIO number. The obvious point here is, that even with the premium, KML was paid less for it's ore than what RIO was because KML's shipping costs are higher than RIO's but even if you used the RIO figure of $5/WMT then KML received $47/WMT for it's ore. I would think this is due to scale and reliability to deliver, reliability of supply commands a higher price.

Whether or not magnetite will command a higher premium in the future is completely irrelevant if the company goes broke in a few months time. RIO mined at C1 costs of $15-$16/WMT and sold for $48/WMT. Their capital costs and financing costs are significantly lower and are placing no pressure on the company. KML on the other hand have a vast debt and huge financing costs associated with this debt. On a cost per tonne basis these costs are huge. Nevermind the fact that it cost $59/WMT to mine and process and they only sold it for $52/WMT, before a deduction for CFR costs.

The only way for KML to be successful is a huge reduction in mining and processing costs. Otherwise the project is just going to keep on piling on debt and inevitably at some point someone is going to pull out the plug and it will all go down the drain.

It is honestly frightening just how badly this project was marketed,  managed and brought online. To figure just how badly look at S11D, Vale's new project. Hematite IO with Fe @66.7%, 4 billion tonne resource, 90 million ton per annum production, $10/WMT production cost. It simply took too long to bring to market, cost far too much to build the processing facilities, costs far too much to operate the plant and they completely cocked up the resource evaluation (it was a lot harder than expected) and therefore the plant wasn't even bloody capable of processing it. I invested before I realised all of these issues and subsequently lost my money because I was offshore without internet access to sell before the price collapsed very very quickly. Now I just keep it as a lesson learned.