Chubbito, regarding the FMG bonds, are you talking about the 6-7% yield bonds issued in March that were 5 times oversubscribed? Sorry, I don't think that's an unusually high yield when you consider the rates available for deposits back in March that were basically guaranteed by the banks and carried zero risk. Then you have to consider overall debt market conditions, with what's been happening in the EU. Because the bonds were unsecured there has to be a higher return because their is some risk. Pinning all of that assumed risk solely on future IO prices is a little naive. I'll happily back the subscribers (who ensured the issue was 5 times oversubscribed, confident hey?) who purchased the bonds in a generally frosty debt market.
Banks have reduced their risk appetite in all sectors, I'm not sure that proves much at all to be honest really. Some investment banks seem quite bullish on EQX.
I get what you are saying, but there are over-arching factors effecting all industries at the moment, and those over-arching factors are effecting things like bond yields and bank interest in IO hopefuls just as much as a future IO price outlook would be.
As for the Chinese production pre-2007, I'd suggest looking at the rate of Chinese production of IO from 2005 onwards and I think that will answer your question. You mine the easiest and cheapest IO first, but once you mine that material you start having to mine the more expensive material. Chinese IO production has more than doubled since 2005, and they are simply running out of IO that they can mine cheaply. So, their cost curve has changed since pre-2007.
"While the growth in Chinese iron ore production has been impressive, particularly over the past six years or so, this has come at a price: a steep drop in implied grade. The average grade of marginal Chinese iron ore has fallen from over 40% to less than 15% during this period. The consequence of this process has been to create a large block of marginal production capacity within China which has steepened the cost curve such that the high cost producer is now four times higher than the low cost producer"
"The formation of this block of marginal production is likely act to shield the margins of the low cost producers in future. As prices decline, this high cost production will cut back on supply thus stabilising the price at a level which would otherwise be much lower."
Also factor in that India is placing export taxes on IO to ensure they can supply their domestic markets first. This will also help prop up prices. Don't get me wrong, I understand that there will be a lot of IO supply coming on line in the next decade, but EQX is going to be a near term producer and as this new supply comes on line and the price declines a little, the Chinese will stop mining their 10-15%fe content ore and just import it. It's also why the Chinese have been looking abroad for some time now, to secure those high grade supplies with low OPEX's associated because their IO is getting more and more expensive to mine and process.
Greek election day today should be interesting.
EQX Price at posting:
$1.90 Sentiment: LT Buy Disclosure: Held
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