cs outperform tp 2.80

CS research much in line with Macquarie

Credit Suisse 29 April 2011 Asia Pacific/Australia Equity Research Steel

Mount Gibson Iron (MGX.AX / MGX AU)Company update
Rating OUTPERFORM Target price (A$) 2.80

Comments:
Preadvised production/shipments hit from rain

As expected, MGX?s MarQ production numbers reflected a period of abnormal wet season rainfall which not only impacted mine productivity, but also resulted in shipments being cancelled as a result of excess moisture in stockpiled ore, and shipping capacity lost due to customers rescheduling ships. Koolan Island shipments of 439wmt (CS fcst 400 ? 500kt) and Tallering Peak shipments of 597wmt (CS fcst 600 ? 700kt). Total Ore Shipments of 1.04Mt exceeded production but down
41% sequentially and below already reduced Feb 21 guidance of 1.22Mt.

The BGC contractors are currently being replaced with an owner-operator workforce on Koolan Island at the end of June. MGX expects this will deliver operating cost, maintenance costs, and productivity improvements as implemented, but will adversely impact production during the transition.

On Koolan Island: Exploration drilling of the western end was postponed because of the weather and is expected to begin again in May. The Project Management Plan (PMP) for < 0m RL mining of the main pit should be received prior to July 2011 (critical path) and the seawall completed in September 2011. At Extension Hill: Mine and rail infrastructure are on track for end of JunQ commissioning however Geraldton port infrastructure is now unlikely to be commissioned until the DecQ, reducing our forecast shipments by 400kt.

Earnings downgrades reflect Extension Hill adjustments, net impact of revised iron ore and FX assumptions more than operational reconciliation. We caution that we remain in catch up mode on FX so have not revised our target price to reflect our NPV of $2.85/share.

No change to our A$2.80/sh target price and OUTPERFORM rating.