I just saw your question about why I thought the purchase was good. Aside from the logistics which will gain us income, for example from port storage leases, and who knows, maybe even railway cartage, I think we all have to agree that first and foremost we are an iron ore producer.
Before looking at these figures consider:
1. They are a rough guide only
2. I have built in some leeway. For example I have used the FOB Iron Ridge costs but Shine is half the distance to Geraldton so costs could be substantially lower
3. The iron ore price can be volatile
4. I don't know what blending/possibly concentrating, of ores the company envisages, but can only assume they will work towards optimizing our returns.
5. If we've done due diligence and are working with some of the MGX team, we must know this deal stacks up for both.
So Shine has 15Mt at 58% IO. MGX produced 300kt from the mine in 6 months of production, but at a time when either they couldn't contain costs or IO was cheaper so that continued mining became unprofitable.
So I looked at the cost of production from Iron Ridge, that is $79AUD/t FOB plus $18USD for shipping or roughly $27 AUD at the current exchange rate. All up $106AUD/WMT.
The current price for 58% IO is roughly $100USD/DMT so $154 AUD.
We lose about 7% in converting WMT to DMT so if we export in a year double the 6 months MGX did, then we produce 600,000WMT for calculating costs, and 558,000DMT for calculating income.
Income becomes: 558,000t x $154/t = $85.9 million
Costs become: 600,000t x $106/t = $63.6 million
Operating Surplus = $22.3 million p.a.
At 600,000tpa Shine's 15Mt lasts 25 years. I suspect with better logistics, notably port facilities, possibility of a rail link, shorter haulage distances, production will increase so LOM will decrease but income will flow more quickly. Those two thing combined will simply result in a quicker cash build, and shorter repayment time of upfront costs.
If one considers the cash consideration up front was $10 million the payback period is 6 months. That's too simplistic because we could pay 10s of millions more to get this show up and running, and of course we are paying out more for dividends on the extra shares on issue. Nevertheless I have always said, the plans and timeline for Shine, through to production will give us a better idea of how this pans out. I have also said, the company would be remiss if it hadn't investigated potential purchase agreements for the quality of final product it plans to deliver, and how to produce that product be it a blend or whatever.
If the ducks all line up, then I came to believe the package was a good deal, primarily because the mine stacked up, but also because the increasing logistical elements seem set to improve margins at both Iron Ridge and Shine, and could conceivably produce income from 3rd party contracts.
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