ARI vs FMG

For the full year FY14...

FMG sold at 86% of the 62% price
ARI sold at 90.5% of the 62% price

So ARI gets about 5% more per tonne.

ARI cash costs are AUD$48
FMG cash costs are US$34 or AUD$37 (audusd 0.92)

So ARI's cash costs are $11 /t more.

Using say Iron Ore (62%) at AU$103, 5% is $5

So FMG is ($11- $5) = $6 / t more profitable

BUT Arrium generates cash from Mining consumables

say EBITDA $170m less SIB capex ($35) = $135m

You could divide $135m / 12.5 (production) = $11 /t

and then deduct this from ARI's Iron ore costs.

So ARI and FMG have the same cost base in effect! +/- a few dollars

Which business has lower gearing? ARI

Which business has a lower interest rate?
ARI 5% compared to FMG 7.5%
* there is a reason for that.

Is ARI trading to reflect this compared to FMG?

No, ARI should be much higher!

OR FMG much lower.

This all assumes Steel is cash flow break even after SIB capex (50% of DA) going forward

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.