re: Ann: Positive Results for Bundi Project S...
I can't answer your question directly CFG - I would think that an IRR of 16-17% would be very good for any mining project, however. There are some posters on this thread who are far more knowledgeable about coal than I am.
I did do a check against the Xstrata proposal at Wandoan. This is immediately next to (north of) MTE's Bundi. I was seing what the possibility of a joint venture or some sort of co-operation might be, even to the point of Xstrata buying out MTE for the purpose of gaining access to the Bundi site.
Wandoan (Xstrata): 30 Mt ROM pa for 30 years, capex ?? Bundi (Metrocoal): 6.6Mt ROM pa for 28 years, capex $1b
From the scoping study for MTE, we get the following costs figures (note - by per sales tonne, not ROM):
Getting out of the ground: $39 per sales tonne Rail and port costs: $38 per sales tonne Other: $4 per sales tonne
Clearly, a huge part of the economics is the rail and port costs. Would a tie up with Xstrata reduce these? I would expect so. Also, there would probably be some reduction in getting it out of the ground costs, by the economies of scale, but these savings might not be as much as savings in transport costs.
Additionally, a tie up should also reduce initial capex costs.
From Xstrata's point of view, a tie up with MTE would add 25% to their annual output. This would make a large project even larger, generating significant savings through economies of scale. How much would it cost them?
There are a number of scenarios, from co-operation to JV through to full takeover. I don't think Dadi would sell their stake in MTE for less than their purchase price of $0.75. So assuming that Xstrata does a full takeover of MTE at $0.75, that would be about $150m. Note that I am not saying that is likely, just indicating what the sort of costs might be. JV would likely be cheaper for Xstrata, for instance; however even a full takeover is quite cheap considering the boost it would give to Wandoan's output.
For Xstrata, Wandoan is a tier one project, low cost and long life. The recent Queensland budget carefully excluded thermal coal from royalty increases. Providing the world continues to build coal power stations, demand for a project like Wandoan will be there. Japan and Germany are both giving up nukes, so coal is the only cost-effective alternative for them, as well as China and India's huge requirements.
I agree with a poster above, that a fall in A$ would help the economics massively. It is strange that as iron ore and coal prices (both being huge drivers of Australia's exports) have plunged, our dollar has not followed. This is perhaps because we are seen as a safe haven. If/when the world economy stabilises, our AUD should reflect diminished iron ore and coal prices, and our dollar should drop to a more reasonable $0.80 or so.
But if it doesn't, then a tie-up between Xstrata and MTE would be of benefit to both.
MTE Price at posting:
21.0¢ Sentiment: LT Buy Disclosure: Held
