worst case scenario

With the uncertainty in the global markets I thought I would look at the worst case if conditions get tougher.

The positives are that we already raised a majority of funds at 75c. Trying to raise money now would be tough, however I expect with the MLA approval and 70% of the start up project completed soon, I expect crisis or not, debt funding will be still completed.

Nearly every analyst agrees (even up to yesterday on Sky business) that Fe prices will remain above $150 for at least 3-5 years, as it will take that long for new supply to come on board.

This would leave us profits of $150 - $65 = $85 x 1mil tonnes = $85mill less 20% traffords share leaves EBITDA of $68mill

Now lets say the crisis bites into Fe prices to fall to $120. I am assuming parity in exchange rates, however I am being conservative as I think if Fe fell to US$120 I would think exch will also fall to .90c. Meaning a FE price of A$133.

Anyway lets say FOB A$120 as worst case and instead of costs of $65 lets assume in first year costs were 15% higher say $75. This would give us EBITDA of $36mill after Trafford get their 20%.

So would you still invest right now on this worst case scenario when the current market cap is around $50mill?

For me the current market cap barely covers the value of the resource and reserves let alone cash and infrastructure spent so far on the project.

So yes even a cash profit of $36mill and $72mill the second and third year on 2 mpta, I would still see great value now and a market cap around $200mill by the time first shipment leaves in Jan or Feb in 2012.

If prices do stay at $150 in 6 months as per analysts guidelines, then bump up that $200mill M.Cap considerably.