At the end of the day, AGO is still highly cashflow positive at US$50 which I believe is roughly where the 58% IO price is ATM (unless I'm missing something). Basic cals: US$50 equals $AUS68 (at 0.74) and full cast costs for this half are estimated at $AUD56. There's $AUD10 in the margin and based on a 8,000,000 million tonnes being shipped that's still $80 million cashflow. Worse case, allow for another $2 on increased ship costs and that's still $AUD64 million. It's no BHP but there's minimal debt compared to the rest. FMG can't pay it's debt off in one year but AGO now can - even allowing for CD capex. Based on 10,000,000+ tonnes shipped over a full year, we're talking $100 million cashflow and approx. $60 million free cashflow for diversification. Breakeven appears to be about US42. I'd also note that unless AGO has unwound its forward puts for this half (already), it'll make a big gain on these when it does realise - and that's real cash - so expecting a good half result despite the low price. Sentiment is horrid but the balance sheet looks solid and price highly undervalued. Expecting a rerate in July when options completely disappear and the June results are out.
AGO Price at posting:
1.3¢ Sentiment: Hold Disclosure: Held
