SAREIC Presentation
I have analysed the "Historical Focus –The Karara Iron Ore Project page 4" provided in the SAREIC Presentation of ASX Announcement 9/04/2019 andcollated it to the FR2017*, GBG quarterly reports announced over calender year 2017 and 2018. The following 2 tables give the breakdown of the weighted average AISC and the associated cash flow analysis of KML for the last 2 years.
These 2 tables show that:
1. The Magnetite Sales Price for 2017 and 2018 almost cover the C1 unit cash cost, Royalties and ocean freight and Interest expanse of AISC.
2. The huge Operating Cash flow deficit is primarily caused by the excessive "Other Costs" (Financing Cost and general costs related to Corporate administration, exploration and sale).
3. This "Other Costs" is $A15.06/dmt in 2017 (Financing-$A7.39/dmt, General-$A7.67/dmt) and $A29.33/dmt in 2018 (Financing-$A11.78/dmt, General-$A16.55/dmt).
4. The "Other Costs" is abnormally high in 2018 especially the General costs and if it is really the case, this implies problem in the KML mine management.
5. Even though the cash flow deficit is horrible, the fact is that the average Magnetite Sales Price ($A114.94/dmt or $US87.15/dmt) is able to support the operating costs exclude the "Other costs" over 2017 and 2018 indicating KML mine is now manageable if the Other Costs can be controlled.
6. Ansteel should be in the position to resolve this high "Other Costs" Problem as it is caused by the large short term borrowing of more than $A2 billion requiring frequent refinancing leading to high financing costs and issue related to sale and Corporate administration.
7. Currently the Magnetite Sales Price is about $US108 or $A152/dmt, KML mine should now be in Operating Cash flow positive (surplus) and this will make the mine even more attractive to Ansteel. This could be the reason Ansteel offers to buy out GBG at almost zero cost.
Table 1 : Breakdown of the weighted average AISC
Weighted average over 2017 & 2018 FR2017 2018 Magnetite Sales Price $A/dmt * 114.94 107.59 122.82 C2 Costs breakdown : - C1 unit cash cost $A/dmt ** (79.98) (74.90) (85.43) - Royalties and ocean freight $A/dmt * (13.40) (12.87) (13.97) - Corporate administration, exploration and sale * (11.95) (7.67) (16.55) a. C2 Costs $A/dmt --------- ------- ---------- (105.33) (95.44) (115.95) Interest & Financing Cost breakdown : - Interest expanse $A/dmt * (22.89) (21.70) (24.16) - Financing Cost $A/dmt * (9.51) (7.39) (11.78) b. Interest & Financing Cost $A/dmt -------- ------- --------- (32.40) (29.09) (35.94) c. Depreciation and Amortisation $A/dmt * (14.67) (14.17) (15.21) AISC (a+b+c) $A/dmt (152.40) (138.70) (167.10) Operating loss $A/dmt (37.46) (31.11) (44.28) Operating loss $Am (586.664) (252.147) (334.668) Volume shipped million dmt ** 15.663 8.105 7.558 Average KML Concentrate CFR Price US$/dmt * 87.15 82.50 92.13 Average foreign exchange AUDUSD * 0.7582 0.7668 0.7501
Table 2: Operating Cash Flow Analysis
Magnetite Sales Price $A/dmt 114.94 107.59 122.82 Less production and interest costs: - C1 unit cash cost $A/dmt (79.98) (74.90) (85.43) - Royalties and ocean freight $A/dmt (13.40) (12.87) (13.97) - Interest expanse $A/dmt (22.89) (21.70) (24.16) Operating Cash surplus/(deficit) before "others costs" $A/dmt ----- ----- ----- (1.33) (1.88) (0.74) Less "other costs" : - Corporate administration, exploration and sale $A/dmt (11.95) (7.67) (16.55) - Financing Cost $A/dmt (9.51) (7.39) (11.78) Operating Cash surplus/(deficit) $A/dmt ----- ----- ----- (22.79) (16.94) (29.07) Operating Cash surplus/(deficit) $Am (356.995) (137.299) (219.711) Other costs A$m (336.179) (122.061) (214.118)
* Derived from figures provided in FR2017 lodged with Australian Securities & Investments Commission on 27-07-2018 by KML.
** Derived from figures reported in the GBG Quarterly reports in calender year 2017 and 2018
Just my opinion, DYOR
