Ann: Arrium Mining Quarterly Production Report, page-9

A few quick thoughts.

1. The recent quarter showed a A$10 direct cash profit/ton but about six to eight dollars short of total costs. Presume this total cost includes interest on the loans borrowed to finance iron mining expansion. So about 60% of the non direct costs were recovered. To cease mining would have meant, apart from a massive write off entry in the books, that the 10 dollar surplus would not have been there to cover on costs. The loans wouldn't go away if mining was stopped. Mining reduces the loss.

2. The higher cost areas will fully wind up this quarter and the cash cost of production will decrease sharply by about $10 ton. This looks like it would cover the non direct mining on costs. They can be reopened when the iron ore price recovers, which it will probably a few years in the future. This is a high grade mining operation in that the quality of the ore has few peers globally. The deposits are individually and collectively smaller than the big WA operations, but they are very close to port as well, making it a bit of a high grade boutique operation.

3. Unlike a lot of other mining operations it is but one part of a more diversified business, one of three main divisions. The other two are going quite well just now, with the mining consumable business selling into a mining industry moving from development to production, in a lot of new mines, and fairly strong construction activity in the eastern states and a lower $A putting the wind behind the steel operations.
Profits from the other two divisions will not be huge, but will likely cover the loss from the mining division which up until recently was carrying steel to some extent. This is a sounder proposition than a one product miner caught up in a price storm, other things being equal. Eggs in baskets and all that.

4. China is putting lead in its own saddlebags by supporting domestic iron ore mining when the grade is amongst the lowest mined anywhere, at about 20% and which has to be cooked no less than three times before it can be put into a blast furnace. No doubt Chinese economic policy is being influence by the geriatric Generals, upon whom Xi depends for a fair bit of his Politbureau support. This won't do the Japanese and Korean steel industries any harm at all, or for that matter the potential for Arrium/Onesteel to find export customers particularly at the quality sensitive end of the spectrum. It will be interesting to see if they score a few runs in this environment on the export front.

The next quarterly report will be interesting.