Ik64, You are not doing the maths Simple maths let's use RIO as...

Ik64,

You are not doing the maths

Simple maths let's use RIO as the example bearing in mind that 93.00% of earnings are from their IO division:

Pre ramp up volume = 250.0mt
Price = $70.0mt
All up cost = $35.0mt
Profit = $35.00 x 25.0.0mt = $8.75b

Post-ramp up

Volume = 350.0mt
Price = $40.0mt
Cost = $25.0mt
Profit = $15.00 x 350.0mt = $5.25b

Notes;

1- IOP is fast approaching$40.00

2- Costs due to the extra volume decline by $10.0mt (generous assumption)

3- Overall loss of $3.5b best case, more likely to be $5.0b

Comments:

How has the company benefited?

Why lose that much and what is gained?

With 93.00% reliance on IO and the other divisions also not as profitable, where is the growth in earnings to come from?

Dividend payout can be maintained

Cash flow from operations sustained to allow for further debt reduction and strengthen the balance sheet.

Harder for Glencore to mount a bid and if it did, the price paid would be higher as profits will be higher.


Preferred Option:

Price to stabilise at or below $60-$70.00mt, all players to rethink this supply at any cost mentality (including your nemesis FMG)

At this IO price the big players are very profitable, IO price however still does not allow high cost producers to stay in the market, both here and in China.

The ore mined by the Chinese us a very low grade and is costly to produce, do the seaborne ore supply still very attractive at these prices.

The cost cutting that has been achieved will ensure above average margins even at a price of $70-$80.0mt as opposed to the days of IOP being $100.0 or more, the miners are now more efficient.

New projects still not feasible and funding would be difficult to find, therefore there would still not exist any major incentive for new entrants to come in.

Expansion of existing mines would also not be feasible at these prices due to capex spend and returns, capital better employed elsewhere or returned to shareholders via share buyback.

The $60-$70.0mt price point is a balanced price for both the miner & the end customer

As a consequence both Royalty & the Tax revenue base will be restored to assist with reduction of national deficit & the $40.00m plus daily interest cost of the deficit which will cripple the country for years to come.

AUD value will be maintained & pressure for RBA to reduce rates negated, reducing pressure in housing price increases & speculative investments as a result of very low rates.

Further interest rate cysts put pressure on self funded retirees and more will join the ranks of govt funded pensioners adding further to our debt

Unemployment, local communities and associated industries will not be impacted as much

Apart from how we can combine the big 4 to wake up and reduce supply marginally, please point out any flaws in my argument and examples provided???