There was an iron ore conference yesterday, where AGO was...

There was an iron ore conference yesterday, where AGO was presenting, however, this is already public information.

The Ridley Magnetite Project owned by AGO is massive - 853MT at 37% Fe. They are targeting annual production of 10MT of concentrate for +25 years.

Magnetite projects are more complex than hematite DSO projects and therefore require much greater capital expenditure to get up and running. Estimates for Ridley are for CapEx of $1.8b.

Given that magnetite projects are seen as less favourable than DSO, AGO has little choice but to attempt to secure a JV partner to develop the project (debt markets are out of the question given the perceived higher risk versus hematite). JV's partners are more than likely to come in the form of hungry Chinese steel mills.

As stated in the AGM presentation, AGO expects to "retain" a 30% interest in production from the Ridley Magnetite Project. This translates to the JV partner taking an upfront interest in the project via a cash payment to AGO and then funding the majority of the development costs AGO may have to fund a small share, but this will come through the cashflow generated from their DSO operations which will commence Oct 08 and likely a equity raising (by the time its needed share price should have risen significantly, reducing dilution).

Even with a 30% interest in Ridley, AGO is still looking at an annual operating profit of around $100m based on operating margins of around $30/tonne.

I have no doubt that AGO will secure a favourable deal, given that 35 parties expressed serious interest in becoming involved and MD Flanagan and Chairman Nixon are very good operators.