purverse situation iron ore

Situation has come about because of lack of knowledge or understanding of iron ore fundamentals.

Some big name companies are way overvalued......yet this one is trading at a purverse market cap. (in my view).

MMX and GBG in particular would scare me to be holding these companies, right now. (much more on these later).

Where do you learn about what is value in this sector.

For a start......few or virtually nobody had first hand experience in an iron ore start up company until about 2004. Up until that time......investors would have had to "cut their teeth" on BHP, RIO and well yes maybe Portman, and low profile Savage River operation in Tasmania. That was it, there were no more iron ore companies in Australia. The big companies were diversfied and there would have been little interest in issue specific, single mine startups for BHP and RIO.

Sure maybe a handful of analysist learnt from Portman....2004 was pre boom time and PMM was 95 cents........so who really worried too much about this small company pre 2004.

So just three years later.....is it possible that this iron ore exploration sector is full of investors who simply do not understand core fundamanetals.

Well I am sure of it.

MGX is the only profitable iron ore company, that has commenced operation, since the start of the China boom. (MIS and MMX lose money on their roadfreight small volume operations.

I was lucky enought to buy into MGX at 12 cents after the demise in 2002 of a planned new steel mill in West Australia called Kingstream Steel. MGX purchased Tallering Peak from the administrator (one of numerious Kingstream iron ore deposits in the mid-west.) Other deposits are now owned by MMX, MIS and GBG.

As a side note, Kingstream was trying to raise about $3 billion for their new steel mill. Their iron ore deposits had little valuee at the time (so much so that Tallering Peak was purchased for $4.5 million.)

Kingstream failed....I am sure right now that Kingstream mgment feel sick at the thought, that their iron ore deposits are now worth far more than the value of the steel mill. An extraordinary circumstance ....for those who have seen it all come about.

Getting back to MGX......I owned these shares for two years. During which time that company faced many hurdles. Shareprice did nothing for two years. Very much a frustrating period ,with start up delays, funding issues, management issues.....only normal therefore to to question and research everything about iron ore. MGX had a magnitite deposit which still has never been developed....despite much confidemce from MGX a few year ago.

So given that it is just possible that some limited experience is out there supporting iron ore companies......(how can all these new iron ore investors be experts,as discussed).

I can offer my views if you think they are of any worth.

First thing you learnt....after following MGX was the need for rail transport and good port facilities. Second thing was, just how long it takes to get an operation up and running. 3rd point.....massive profits and margins on iron ore exports are possible. These are the 3 key points. (Vast quantities of deposit are less important than most would believe.)

YML at its market cap of $55 million brilliantly fits the above criteria. The reasons have been discussed here before.

But what of MMX and GBG.......ugly through lack of understanding, in my view. I discuus them only to highlight the fact that......"well maybe YML market cap is purversily low"

MMX has a market cap of about $1.8 billion. Company has signed some form of a deal with a Japan based group. MMX believe at around a market cap of $2.4 billion...they would be happy to a 50% split ownership of the company, subject to a contibution also of about $2.4 from Japan. That major new cash injection would go to build a rail line and port. Means MMX will have a market cap of $4.8 billion. They have undertaken 30 kms of drilling since 2005 and have a confirmed deposits of almost 100 MT of direct shipping grade ore.

So the company needs cash to be forthcoming of about $2.4 billion, for production in about 4 or 5 years time. In my view high risk for low return (given their present cap). Not an acceptable investment-horrible could be one description.

Over to GBG.......market cap of $550 million. 30MT of direct grade iron ore and heaps of magnitite. MGX sold their Extension Hill magnitite deposit for $50million.
GBG need to raise $1.6 billion just for ther magnitite project. They have no rail (say they will use shallow Geraldton), but are hoping for a new rail/port project (maybe in conjunction with MMX proposal) to get their product to market.

What if their is a China slowdown.....investors in these companies would be left with nothing. Funds would not be forthcoming or the projects completed. YML small cap low risk, high profit....quickly move into operation with Pilbara facilities at hand. Would survive a China slowdown.


So what is the whole point of all this......as I say, I would suggest that analysists and investors simply do not fully understand why they are investing. It follows that YML is lacking support because these people can't work this company out yet.