Ann: Refinancing Update - Launch of Senior Secured Note Offering, page-81

AverageJoe,

Would work, but the catch is that they will require cash flow to fund day to day operations and could not use the full $7.5b to get rid of the debt.

Lets re-do my calcs and say they convince a customer to prepay an amount more than I posted initially from $1.0b lets increase it to $2.0b

Th customer would be entitled on delivery to offset against the prepaid amount the going rate for their (FMG's) 58.0% fe ore (already discounted against 62.0% Platts index) plus a further discount of say 5.00%.

Assuming that the delivery of ore is staggered over three years (the financials indicate this to be the case for the existing prepayments received), at a fully discounted price of $50.0mt on average that equates to 40.0mt over three years ($2.0b/ $50.0mt = 40.0mt) or 13.0mt per year.

As they now ship 160.0mt, this would mean that they would only receive in each year the sales value applicable to 147.0mt (160.0mt less prepaid ore already paid for 13.0mt).

Cash on hand $1.6b plus $2.0b prepayments = $3.6b, payback the $1.0b due 2017 & $400.0m due in 2018.

This would leave cash on hand of $2.2b as a cash buffer in the event IO tanks, and this cash buffer would cover future negative cash flows. Of course they would be generating cash going forward and this could be put aside to repay the $1.5b due in 2020.

The Bond markets would look at FMG in a better light and extend the repayment date for the $4.9b and/or split the facility into smaller amounts but extend the key repayment dates.

Problem solved.

Now all we need is a Chinese customer with funds to make the prepayments, they have done this before and raised $1.2b.

Their JV in BC Iron I think it is Baosteel is a very large player in China and may just come to the party given the right incentive. Hunan Steel with a 15.0% stake in FMG would also be motivated as they have a vested interest to ensure that their investmentb in FMG is not eroded.

The prepayments are a win win, as the customer gets the ore that has been contracted for based on a schedule for delivery and pays market price less a further discount/incentive.

BHP/RIO suck eggs.

Again prepayments are not a bad thing, upfront cash for future delivery may well save their bacon as the bulk of the funds can pay existing loans, de-leveraging the balance sheet especially favouring the secured note holders a they would rank well ahead any customer pre-payments.

I am going to call Steven Price CFO, Nev & AF and get them to make the call to China, before the big 2 use this clever strategy that FMG pioneered. Shows that FMG is respected in China.

Think about it, they received $1.2b in cash up front, with the customer taking the risk that FMG will be around to deliver. Means that someone loves FMG and wants them to prosper as they counter the market dominance of the Big 3.

Do not forget the fact, that in such a short time, they ramped up production to reach the target they set in 2006 to 155.0mt, now 160.0,t with available capacity to go to 180.0mt.

FMG has a 16.00% share of the overall Chinese seaborne supply market, not a bad effort?