Today's smh/age article putting Arrium together with AGO, FMG etc. inspired this.
Arrium cost per tonne for Iron Ore is AU$71 or US$66
Look at the results (released 1 week ago) and mining (Iron Ore) segment analysis.
Revenue = $1,569m
EBITDA = $686m
Cost of goods sold (COGS) = $883m (i.e. 1569 - 686 = 883)
Tonnes = 12.5
So 883 / 12.5 = AU$70.64
Or AU$70.64 * 0.93 = US65.70
What is incomprehensible is markets, analysts and media reports about Arrium is that...
It has TWO significant other businesses.
Mining Consumables and Steel which combined produce cash in excess of interest costs.
Also, the very profitable Iron ore business is getting significant tax benefits from the steel's previous losses.
Underlying tax was $82m but cash tax paid was only $43m. That is another 3 cents a share to FY14 profits but management (because they are 'professional' and very competent) do not include this in underlying earnings.
Almost every question in the Q&A after the FY14 results was about the Steel and Consumables businesses.
The consumables business on its own pays the group's interest costs ($108m FY14 cash expense and lower in FY15) PLUS another $40m left over.
The Steel business is cash flow neutral. But almost certainly will be significantly profitable with just a small 5 cents move lower in the currency which everybody (maybe 95% of analysts) expects within 12-18 months if not sooner.
Both have material cost saving benefits from FY14 that will flow through to this years and future years EBITDA.
The mining consumables business is being expanded as it is profitable significantly above the cost of capital.
EBITDA for the consumables business should be at least $250m in 2-3 years time due to increased capacity.
As for gearing at 31%, much lower and everyone would be critical of management having a lazy balance sheet.
As for Iron ore they have enough reserves (78m) for another 6 years at 13Mt. They are investing sensibly now to increase this materially.
NTA is $1.29 and reuters analysts FY15 EPS averages 9.3 * 14 times = $1.30
Isn't it obvious...
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.
- Forums
- ASX - By Stock
- Arrium can NOT be compared to AGO, BCI, FMG, MGX etc.
Today's smh/age article putting Arrium together with AGO, FMG...
-
- There are more pages in this discussion • 3 more messages in this thread...
You’re viewing a single post only. To view the entire thread just sign in or Join Now (FREE)