Danger Will Robertson!, page-32

Hey Mole,

Industry standard for the shipper to pay for freight costs.

Samson, to go back to my $100/ton. Firstly, in this case profitable is producing cash after all costs, with the vast depreciation on this puppy the price would need to be a lot more than that.

Let's examine the costs:

C1 mining costs 2015 Q1 US$75/ton, Q2 US$61/ton, Q3 US$58/ton, Q4 US$59/ton. You're correct they did some cutting, however for the last three quarters the C1 mining costs are around US$60/ton.

What is not considered (from the quarterly)?

'depreciation and amortisation, corporate administration, sale, royalties, ocean freight, interest and financing costs'

Depreciation and amortisation- $2.5B invested, 20 year mine life $125m/8 mtpa ~$15/ton (simplified)
Corporate admin $1/ton
Sale $0.5/ton
Royalties $3/ton
Ocean Freight $5/ton
Interest and Financing $10/ton (4% on US$1.8 B)

So cash costs are 60+1+0.5+3+5+10=US$79.5/ton, with depreciation that's around US$94.5/ton.

So their breakeven cash cost price is around $80/ton, that means for the 4 mt they shipped since the refinancing in July they have lost another $100 m+. After $80/ton they can return cash, to pay debt. They'll be loss making until $95/ton plus.

Also, what is not in here????? Any capital costs whatsoever, we all know they're still investing and spending money on getting this thing fixed. Small $20-30m upgrades in the plant (ie. a shutdown and overall) on major equipment throw your $80/tonne breakeven out the window. FMG are spending $2/tonne on sustaining capital, with a streamlined process that doesn't require any major fixes, what's the KML sustaining capital cost (nevermind de-bottlenecking and process fixes)????

The US$100 a ton I estimated was to give coverage for all cash costs, all corporate costs and put a decent chunk in there to cover maintenance and sustaining capital costs. I still think this is pretty close.

You need 66% Fe at around US$100/ton to cover the absolute costs, maintain the plant and you need this for 2-3 years to get the whole process nailed down and understood. This doesn't allow any reasonable debt repayment. I cannot see this happening with S11D and Roy Hill coming online and BHPB/Rio/Vale/FMG all available for extra tonnes.

I can't wait for the quarterly, hopefully I am terribly wrong!!!