re: good question james. Hi Phil,I remember you telling me that...

re: good question james. Hi Phil,

I remember you telling me that the iron ore price was not fixed and based 62% fe FOB Huasco for $37 million per Mt.

I am interested to know how flexible the price is in your eyes? Say for example, that CVRD doesn't get a 10% increase at the next round of negotiations, and actually accepts a 10-15% decrease, to what extent would this impact ADY's price with Cometals? Would we see a similar 10-15% decrease or do you think you would be able to hold out? Similarly, if we don't manage to make 62% for a shipment, say we only get 60% to what extent do you think this would affect the price?

Thanks


James
Response From Phillip:

Dear James,

If medium term the price falls those that are out of contract will have no other option - but to optimise their pricing strategy between a lower contract price and the cost of holding stock to get a higher spot price.

Clearly the best strategy is to lock in for 5 years or longer at a very high contract price. Some clients will accept this as continuous supply is more important than paying an additional $3.70 when they are selling steel for $550 tonne. Others will not and will want to renegotiate each April or peg a price to a range of other factors of which Fe content is just one of them.

Fortunately we are only selling one to three tonnes per annum and not 45 million tonnes like others in the industry so we can be a bit more choosey ( read haggle harder) to maintain our pricing, given we have very clean, dry ore (being in the desert and mostly being magnetite).

We have the capacity to blend ore from other reserves/mines we have that are as high as 67% Fe so we will always get 62% unless we choose otherwise.