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Russian Billionaire Eyes Sundance !, page-79

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jayneen

1,199 Posts.

270

25/12/16

23:06

Post #: 21556835
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Originally posted by jayneen ↑

Cost estimate to use rail and port of US$15 per tonne is, in my humble opinion, unrealistic in the context of government owned and operated infrastructure. Regardless this detail is irrelevant.
To misquote Clinton:
"IT'S ABOUT THE IRON ORE MARKET STUPID".
Others can do research on topics of interest but my assessment is driven by a very clear big picture which will drive reality sooner or later.
It is a fact that there is currently no railway and no port and no mine and so considering the possible costs of operating fictional infrastructure from a non-existent mine is a moot exercise. Some will consider this statement an attack or an extremely negative perspective on SDL and they are exactly the readers who should stop and consider the importance of the following:
There is currently no railway and there is no port and Sundance's iron ore is hundreds of km from the west coast of Africa and remains buried in a similar manner to the way it has existed for thousands of years. The French discovered iron ore in West Africa in the 1950s in huge quantities and with exceptional grades. This was, at the time, considered geologically interesting but logically was not considered of any possible economic benefit given the availability of iron ore in the global market and the logistical difficulties of extracting and transporting ore from West Africa to market. The French did early stage mapping of the many large high quality iron ore deposits they discovered in the Congo basin region (Belinga, Badondo, Avima, Zanaga) and noted them of potential future economic benefit due to the potential for associated gold mineralisation within and external to the banded iron formations. At the time it was not considered that the iron ore could be of potential economic benefit given the cost of extraction and transport compared to the global availability and price of iron ore (hmmm sound familiar?).
The explosion in Chinese demand for iron ore a decade ago and the price rise to circa US$180/t changed this assessment and created investment support for the possibility of sustainable economic production of iron ore from West and Central Africa. Myself and others were early adopters and supporters and beneficiaries of this investment wave.
Effectively my assessment is that this opportunity has proven to be illusory and the current price of US$40/t for iron ore has returned the iron ore deposits of the region to being geologically interesting but of no short or medium term economic value. The current price is manifestly insufficient to justify development of a mine or a railway or a port. Mining projects generally need large margins over cash costs to justify development. My rule is that expected revenue needs to be double estimated total cash cost. This is a useful rule of thumb that I have found beneficial in more than 35 years of successful investment and financing of mineral resource projects.
The application of this rule allowed me to exit early from my iron ore investments and also drives my assessment that SDL has zero chance of success in the current iron ore price climate.
Important to note that the problem is not just a iron ore price issue - it is an iron ore volume issue. The two are intrinsically linked but the massive volume of seaborne iron ore and the ongoing expansion of supply (think Gina's first shipment) means that the smarter pundits are analysing when current production volume (eg FMG) will be forced OUT of the market much more than they are factoring in any new production. New production like Simandou or SDL is, in this context, an absurd pipedream perpetuated by people who haven't noticed the band stopped playing a while ago.
Its over.
It is just that you haven't yet turned out the lights.
J9

Expand

A year later....
FMG has been a remarkable story of cost reduction and brilliant strategic management to remain a profitable producer.
The iron ore price rise has taken everyone by surprise but is still not at a level (or considered sustainable?) to justify any significant value uplift in African iron ore plays.
The Russian investor has apparently written off his SDL investment to zero as bad timing.
I would not be surprised if SDL maintain the current survival status for some time to come. There is simply zero motivation for anything to occur to change the status quo.
J9

SDL Price at posting: 0.3¢ Sentiment: Sell Disclosure: Not Held
3 Upvote

0 Great analysis

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