Ann: Successful Completion of Southdown Project P, page-6

re: Ann: Successful Completion of Southdown P... they are big numbers to digest....I'm a bit of a conservatist so

say they spend $4.0bn upfront
pellet price $115 / tonne AUD
production cost $90 / tonne (slight blow out on the estimate, plus shipping and royalties which arent included)
production 6.3 Mt/year (pellet plant operating at 90% capacity)

net cashflow 157 mil / year

so we're talking a 20 year payback without accounting for NPV! Doesnt sound good to me.

However the pellet price is currently a lot higher, so say we replace $115 with $190 AUD and you get a payback four times faster and if they keep the cost down well even better.

Risks to consider....
- capital blowout
- operating blowout / improvements
- source of funding - debt or equity issue?

But long-term iron ore price is really what you need to believe in with this project.

I'd guess there are probably better returns out there for a minimum 3.5bn investment??

I've done this pretty quick and nasty so would be happy to see someone with a different analysis.

DYOR.