In my continuing series of posts comparing Arrium with FMG and...

In my continuing series of posts comparing Arrium with FMG and AGO.

This analysis ignores 'accounting DA' / tonne which is it's biggest weakness.

This is an analysis to work out FY15 cash flow (after interest and stripping) for ARI, FMG and AGO using the current iron ore spot price of $87.30.

Note: I have Arrium Interest costs as JUST an Iron Ore business at $0. Due to their other cash generating businesses (Consumables, Steel, Recycling). At the end of this post my calculation for this is explained.

Conclusion : Arrium as JUST an Iron Ore business is cheaper than FMG and AGO today!

FMG's numbers are converted to AU$ using 0.935

	Column 1	Column 2	Column 3	Column 4
0	Using FY14 Revenue and EBITDA to calculate Cost / tonne.	ARI	FMG	AGO
1	Adjustment of 62% Price	95%	86%	81%
2
3	AUDUSD		0.935
4	Revenue	1569	12570	1098
5	EBITDA	686	6028	248
6	COGS	883	6542	850
7	Tonnes	12.9	124.2	10.9
8	Calculated cost / tonne	68	56	78
9
10	FY15 Interest Costs AU$m	see below $0	770	25
11	Interest / tonne		6	2
12	Stripping / tonne	6	8
13	Total Other Costs (interest + stripping)	6	14	2
14
15	AU$ Cost / tonne after deduction interest and stripping. *	74	71	80
16
17	Today's US$ Spot	87.30	87.30	87.30
18
19	AU$ Spot	93	93	93
20
21	AU$ Realised price (adjustment to 62% price for grade)	89	80	76
22
23	Cost / Tonne (calculated above *)	-74	-71	-80
24
25	AU$ Profit per tonne at Iron Ore US$87.30	14	10	-5
26
27	FY15 Tonnes	13	160	12.8
28
29	FY15 Cash Flow AU$m	187	1,562	-60
30
31	Cash Flow Converted to EPS **	0.14	0.50	-0.07
32		0.76	4.10
33	Current share price / cash flow EPS **	5.5	8.2	-

The last line shows that Arrium is cheaper than FMG.

If FMG was $3 today then Arrium and FMG would be the same value. Or Arrium was $1.10 today.

I have Arrium Interest costs as JUST an Iron Ore business at $0. Due to their other cash generating businesses (Consumables, Steel, Recycling).

	Column 1	Column 2	Column 3	Column 4	Column 5
0			Stay In Business
1	FY15	EBITDA	Capex	Tax
2	Consumables	202	35	42
3	Steel	51	52
4	Recycling	12	6
5	Head Office	16			Total Cash Flow
6	Total	249	93	42	114
7
8	Total Cash flow	114
9	Interest	110
10	Net Interest Costs	4

A percentage of Arrium's interest costs are for working capital (inventory + Receivables - Payable's) of their other businesses (Consumables, Steel, Recycling). It is hard to work out exactly but it is greater than 25% of their Net Debt. This is not included in the above analysis.

The writer implies no investment recommendation. This report contains material speculative in nature. Investors should seek professional investment advice. The writer owns shares in Arrium.