grr is making money

The current pellet price being achieved by GRR seems to be a bit of an unknown.

We do know that the spot price for IO pellets is a premium to the IO spot price. This premium was around $50 dmt at one stage, however, when the IO spot price retreated the pellet margin contracted as well. This premium is a direct reflection of the fe grade. The GRR pellets are around 65.5% fe (as quoted by GRR), wheras the IO spot price generally quoted is for 62% fe.

According to the market update by GRR issued 10/9 -

"Grange remains on track to sell approximately 2.3 million tonnes of iron ore pellets during 2012. Savage River pellets continue to attract a premium price relative to daily 62% Fe iron ore fines prices. Revisions to the 2012 Savage River mine plan following the July 2012 rock slide are now complete. Approximately 2.1 million tonnes of premium 65+% iron ore pellets will be produced full year 2012. Targeting C1 cash operating costs of approximately A$110 per tonne of pellets produced for 2012."

The average pellet price achieved by GRR for half year ended 6/2012 was $157.64 per ton (C1 operating costs - $102.66). Figure for the three months to end of 9/2012 are due mid October, and are likely to show a reduced margin although still very comfortable.
As a rough guide these figures (IMO) indicate that the IO spot price would need to drop well below $80 before GRR would be operating at a loss. DYOR.

What is interesting to me is that the Southdown project in WA has a projected ore grade of 67% (better than Savage River) and it is four times larger. On this basis if the IO price comes under future downward pressure Southdown would remain cost effective well after many other mines have ceased to be so (including GRR's Savage River operation). The issue is that a figure of $2.8B has been projected to bring the Southdown project on stream, albeit some of that figure has already been spent.

As things stand (IMO) -
- GRR continues to make good money (even if Southdown is delayed)
- GRR is paying a dividend
- Solid cash reserves
- No net debt
- GRR product carries a price premium
- Southdown offers huge potential
- Southdown project needs to be ramped up
- Southdown project funding/partner arrangements need to be settled a.s.a.p.
- RGL needs to be off the share register as the true value of the company is being adversely impacted by RGL sales

These are just my rambling thoughts for your consideration. Please do your own research and don't rely on the above for your investment decisions.


DYOR