Break even points, page-6

Hey Dugsab,

A fair question which has been done to death but I am happy to provide a comment.

Upfront there is a bit of tit for tat going on here between Sdl fans and eqx supporters. Can't see the upside in it personally but that is what it is.

Exxaro bought the project from Aki/Tony Sage. He did the transaction of a generation in West Africa. Didn't do a lot of drilling and Exxaro didn't do a lot later on. Did a bit but not a sh#%load. That was there undoing in some ways. Sometime later they discovered that they had no solid understanding of what they had bought. They also worked out they didn't have as much hematite cap as they originally thought and that they would be mining magnetite quicker than first thought. They at this stage had spent 500 odd million in buying the project and rolling stock etc etc. Magnetite requires enormous energy to crush and mill and so all they could see was more cost in as far as bringing in power lines as gensets wouldn't cut it in processing magnetite. This is point at which they flinched. They told the Roc gov that they needed big volumes guaranntees on the rail to make the numbers work and when denied this by roc gov true to their open access policy they blamed the gov by saying they couldn't agree terms. This is a graceful way of blaming someone else and disappearing from the scene with some integrity intact.


eqx did 60 odd million bucks worth of drilling. They have a very good understanding of what they have. You should have a look at their Jorc for further understanding. It is all on the website. They have a solid amount of hematite and are not interested in the magnetite at this stage and that is unlikely to change unless io becomes a scarce commodity.eqx has better geology than exxaro and a better understanding of what it has. Ian MIddlemas does the basics well and eqx is no different.

Capital intensity in this environment is everything. Those with the lowest capital intensity regardless of whether you are producing 25 or 2.5 million tonnes will be the most likely to get across the line. I don't think too many funders in this environment will commit big funds to a project that is going to add more supply to the market and adversely affect the price in a negative context. Sdl is a great resource but has missed the boat like eqx has with badondo. I expect eqx will get funding before sdl does given 3.5 billion in this market is a bridge too far. I suspect those strategic investors who have bobbed up at sdl are positioning themselves to take control when the pain becomes to much for the rest of shareholders.

I wish you well and best of luck.

Buzz