Ann: Anglo American Agreement, page-58

Some very positive looking calculations there, appreciate the effort. It feels like a bit of a best case scenario, possibly more like what RKEquity’s overview would look like now, in light of the IO price correction, in a bull case?

I think for me I’m being a bit more conservative on a couple aspects of the cost analysis, particularly the freight charges and the Anglo discount, and on the SP estimates.

Those quotes you have for Australia and Brazil shipping rates are presumably for the major players who would have worked for years to optimise those rates, and have the size and scale to achieve them. It might be a little optimistic to presume MGU can achieve comparable rates with their very small scale, but would be great to hear from management on that.

Regarding Anglo discount, the $10/t estimate feels on the low side..let’s say they purchased 800K tonnes of 62/65% ore at average cost of $150/t, that’s a $120 million outlay to make $8 million back, just a 6.6% return..feels a bit low for that kind of sized investment.

Regarding the SP estimates, I’ve tempered my expectations quite a bit lately, I still think there’s decent upside potential which is why I’m invested, but I always hesitate in reading too much into estimates based on NPV calculations because it assumes the market values things almost correctly all the time, which we know it never does. If it did we’d be much higher already.

We’re going to have constant downward pressure on the SP if the IO price continues to correct as most predict, regardless of progress made. Just these last few weeks it’s fallen 33% even though we had been anticipating a major binding offtake agreement imminently. So with market sentiment towards IO feeling like it’s at quite a low point, given how fast IO prices have fallen, it will only lessen further if IO prices do indeed keep falling towards more ‘normal’ levels that are predicted in the next 6-12 months.
I hope I’m wrong, but It does feel like start up/junior (ie unproven) IO based companies will find it much more difficult to significantly grow market cap, at least to where NPV’s predict they should be, in an environment where the underlying commodity price is expected to lower a lot over the next few years compared to where it is now.