firmer iron ore price helping, page-9

Hi Crazy, you are crazy!

Fmg costs of production are lower than you think and getting lower every quarter especially with the increased production.

Their C1 costs will be under $30 this quarter, add $4 for royalties $10 for freight and another $10 for sustaining capital, admin and interest and you end up at $54.

Their current discount is 12% off the current 62% price of $95 which equates to a discount of $10.

So they are producing for around $54 and getting $84 to $85, that's a $30 profit per ton or 4.5b before tax.

Even if the 62% price drops to $75 they still make $10 or $1.5b per year before tax which would put them on the same PE as RIO at present.

How many miners go broke if the price drops to $75, I'll tell you all of them except FMG, BHP, RIO and Vale. However Vale's total production costs are similar to FMG because their freight costs are $25 per ton from Brazil to China, so even if their production costs are lower they are line ball with FMG when you factor this in.

Fmg's interest bill is also continuing to come down also so I'd say these costs will be closer to $50 by the end of the year, plus I wouldn't be surprised if they sell their remaining interest in the IronBridge project for $2b or $3b later this year or early next year and use this plus their cash on hand to basically wipe nearly all their debt.

So unless you think the world no longer needs steel I'd be careful shorting the stock at these levels just ask all those overseas hedge funds who got burnt doing that last year.