When all is said and done with the market correction it will just go back to good old supply and demand.
One thing for sure by 2012 there is going to be plenty of choice, so many juniors with resources.
IMO the Steel mills will use the next few years to pick off juniors that could guarantee supply and quality for say 20 years. Whether the government allows it will be another question.
For example UMC pre feasibility suggests $40 Tonne Cost.
Assume 200 MT Resource
I hope it doesn’t happen but take out this stock at $1.25 per share, Add another $2 per tonne for capex and you have 20 years supply for say $43.00 per tonne.
The steel mills were already starting to do this before the collapse
Majors could ride out this sort of scenario due to size and scale
The producers are now the price takers and I wouldn’t be surprised to see all of last years increase gone. The above scenario gives them plenty of bargaining power.
Cash is not enough to get to production, which leaves dilution or a sale.
The directors now face the prospect of having to do JV now or risk the whole company while there is still speculation on just how far prices can fall. 20-50% is still not bad but taking a wait and see approach and prices collapse again it just might be game over IMO.
UMC Price at posting:
46.0¢ Sentiment: LT Buy Disclosure: Held
