Only negative thing we’ve officially heard from the company was the offtake being delayed.
Other than that, you just need to look to other IO juniors to see that it’s clearly the IO price crash that is causing the negative sentiment and severe downward pressure on share prices. See for example FEX/CAP/SRK/CAP etc... they’ve all also suffered 30-50% price drops. Even FMG has lost ~20% too.
The IO price is tumbling and obviously the fear here is that if it crashes completely, it probably makes many junior IO projects looking for near term production unviable. For a very close to home example, Nevada Iron, who previously owned MGU’s Buena Vista asset had planned to go into production 7 or 8 years ago but ceased their project when the IO price crashed.
The value of an IO company lies in what’s in the ground and if it costs more to produce it than buyers will pay for it, that’s not a viable business model.
In MGU’s case, if the price completely crashes, that would most likely mean no DSO offtake deal, because why bother mining product that won’t sell. Whilst it still would own the Buena Vista asset, it would then mean a much more difficult path to becoming a green steel producer, because we are currently planning on cashflow from the offtake, to fund the green steel capital expenditures required (~$300M). It could still try and get there by obtaining funding through other means like debt/equity/joint venture etc of course, so a total IO collapse is potentially not a complete death knell for the longer term green steel plans.
The above total IO collapse is clearly the very worst case scenario and I don’t mean to cause concern because it could very well turn back around just as easily as it has fallen, but with IO falling 40% in just a few weeks, even though it’s still quite high now, people are clearly fearing it will fall another 40% or more just as easily in the coming weeks/months and selling out of their positions.
So if you believe IO price trend will stabilise around current level or rise from here, the future is great for MGU and these shares are dirt cheap.
If you think IO price will completely collapse, the future becomes very uncertain and far more speculative than before.
MGU Price at posting:
8.9¢ Sentiment: None Disclosure: Held
