However, I believe the benefits to green field projects like SDL's outweigh any negatives.
Reduced operating costs due to lower fuel and freight prices, more favourable exchange rate plus the proposed economy of scale increase, should demonstrate the project's enhanced viability IMO.
This extract taken from FMG's Quarterly released this morning:
"C1 costs in the December 2014 quarter averaged US$28.48/wmt, an 11 per cent improvement over the prior quarter reflecting the continued focus on operational efficiencies across all sites, a lower Australian dollar and lower fuel prices. Importantly, Fortescue exited the quarter with a C1 cost of US$27.37/wmt for the month of December.
Fortescue’s total delivered cost to customers has further decreased to US$41/wmt inclusive of C1 cost and shipping, royalty and administration costs, nine per cent lower than the prior quarter.
The Australian dollar and price of oil both fell significantly towards the end of the quarter positively impacting C1 cost. The full impact of these falls will flow into C1 during the March 2015 quarter assuming consistency in the markets.
The US to Australian dollar exchange rate averaged 0.86 (0.93 in the September 2014 quarter) and reduced C1 costs by approximately US$1.60/wmt during the quarter. C1 costs are impacted by US$0.20/wmt to US$0.25/wmt for every one cent movement in the US to Australian dollar exchange rate.
Fuel and energy costs make up approximately 12 per cent of total C1 costs. Lower oil prices reduced C1 costs by approximately US$0.26/wmt in the quarter. Fuel and energy costs also have a significant impact on the cost of shipping which averaged US$8.50/wmt in the December quarter."
Cheers,
Samson
SDL Price at posting:
2.6¢ Sentiment: Hold Disclosure: Held
