Hi both, I love your optimism
@MrStrengths. I would like to think this way and I had previously posted what could be the company value at the best case scenario. No one can guarantee that this will not happen. But as you said hope for the best and plan for the worst.
@redned71, I love reading your posts and your realistic approach of looking at things. That is coming from your decades of experience in the market. And yes I agree, the worst enemy of an investor is thinking that ‘this time is different.’ The only difference would be the length and the severity of the price cycle. I am of the firm belief that the correction will be less severe than the prior correction or at least will not be the level where companies like MGT and CAP will need to cease operations. That is based on the view of the iron ore market experts in terms of the supply and demand imbalance. The supply in pipeline in the next 5-10 years and the potential demand from China, US and other developing countries in Asia likes of India, Vietnam, Indonesia etc. The big miners that are sitting on insane amounts of cash haven’t invested enough to maintain the current supply quantity in the next decade or so let alone increase in in supply. Instead they opted to distribute big chunk of the cash to the shareholders in the form of dividend or share buy back. This is reflected in the amount of dividend paid by FMG for example. However the demand has been forecasted to increase particularly the higher grade ore that likes of MGT and CAP. Higher grade DSO are depleting faster and no new major mine are being developed.
In terms of funding the production, just wanted to share my recent discussion with Peter. He explained why MGT wants to start small . Their main focus is to reduce capex as much as they can so MGT can become a producer. Once we become producer and start generating cash, the management will focus on driving down the costs so we can continue operating profitably at the bottom of the price cycle. Expansion is not an issue as there is plenty of resources (he did mention up to 30 bil tons. That number is also published by the SA government).
When there is billion dollar tag in capex, it becomes really difficult to fund hence projects never get developed as you have already pointed out. I hold both CAP and MGT. CAP’s plan of starting at 10mtpa with a capex of over $2 bil AUD is really ambitious. If they can get there that is great but there is higher risk with that approach. MGT’s previous attempt of ambitious plan to become producer was halted due to the level of capex (one of the reason). So the current management is taking different realistic approach of converting MGT to a producer from explorer with small start up with low capex. Once we become producer there is no limit on where we can go. So my holdings is more skewed towards MGT.
MGTs capex is just one 4th of CAP’s capex. It is not small amount but much easier to raise than raising over $2 bil. So there is higher chance of MGT going into production.
Also there is little misconception that MGT is really behind in the timeline with CAP. In fact MGT is nearly fully funded for DFS and what I understood from the last announcement and my chat with Peter, DFS is already well underway. So MGT is in fact ahead of CAP in that respect. People can say how can you do DFS before releasing PFS but MGT did its PFS previously in 2013 as well. This PFS is more like optimised one with different approach and with inclusion of NextOre technology.
Cheers
(20min delay)
