It seems everyone is predicting the currency is in the range of...

It seems everyone is predicting the currency is in the range of 80 to 85 by the Dec 15.

It is an easy and obvious prediction with US interest rates set to start their rise in 2015.

If this occurs then Arrium will benefit massively.

Lets say an average of 82 cents for FY16  (ie July 15 to June 16), only 10 mths away.

EBITDA
Iron ore : US$96 is AU$117
Realised Price 117 x 95% = $111 (normalized grade discount by then as in 1H14)
profit per tonne = $111 - costs $70 = $41 *13 = $533

Mining consumables = $205m

Steel & Recycling
Use $50m as a base then a $10 for every 1c fall in the currency 94 - 82 = 12.  
ie $50 * 12 * $10 = $170
Take off 25% to be conservative = $127m

Total EBITDA = $865
DA = $364
EBIT = $501
Interest = ($90)
NPBT = $411
Tax @20% = (82)
NPAT = $328
EPS = 24 cents

Interest might be +/- $10m
Tax is a bit of a guess as always. But actual cash tax payable will likely be much lower due to tax credits.

So say a 13x multiple Arrium could trade at (13 * 24)

*  $3.12 and be fairly valued...

Given of course the assumption of a 82 cent currency in FY16.

KEY POINT : the currency will have NO reason to increase in FY17, FY18 etc. as US will have normalised interest rates.

The writer implies no investment recommendation. This report contains material speculative in nature. Investors should seek professional investment advice. The writer owns shares in Arrium.