Buy at $2.60, page-11

I have just started looking at FMG, so no means an expert.

Based on AGM numbers, cash costs are $54 per wet metric tonne (C1 Mining Costs, $32 wmt
Freight, royalties, o/h $13, interest $4 and sustaining capital $5).

Price receive is spot price less deductions for impurities, moisture and grade. The deductions have been over 20% of the spot price - eg in September spot was $85/dmt and FMG received $66.

So at a spot of $70, FMG is probably only just covering its sustaining costs, and will be cash negative when other expenditures are taken into account (eg other capex, tax etc). Non-sustaining capex seems to be about $500 million for FY15.

FMG can sell rail/port assets which will help with headline debt and probably covenants, but will simply swap lease costs for interest costs and may be detrimental to opex at current interest rates.

My reading is that the capacity to further reduce opex will be at the margin, so at this point this really is a leveraged bet on the iron ore price.

Is this a fair summary? Happy to be corrected.

Sammy