FWL is very hard to get into production simply the production capacity is too low and too expensive.
FMG is producing 155mt pa and they will repay debt within 3 yrs (100% debt free). FMG then can do further expansions into 300 mtpa (another $10B cost) with free cash flow funding no debt.
My point is supply will keep on going forever. BHP, RIO, Vale, FMG and Hancock have the balance sheet to fund growth to keep up with any increase in demand from China.
This makes iron ore exploration companies dead in the water. FWL is not alone, look at CAP, ROY, Midwest, Cape Lambert, FMS etc.
Market clearly understand this as FWL sp collapsed, so as ROY, CAP, FMS etc. While BHP, RIO and FMG are doing extremely well. FMG is slightly lower due to current debt.
Compare those companies with GBG, AGO etc see how their sp performed.
Even Hancock's 55mtpa is still questionable if profitable in the future.
Size of production is very important. IMHO 100mt pa is MINIMUM cut-off to be cost competitive.
Just IMHO.
LCG Price at posting:
1.8¢ Sentiment: ST Sell Disclosure: Not Held
