m&a activity , page-3

Hi Pilatus,

Good question. I've had a bit of a look in to this. Hard to get a grip on but a few key points below.

AQA has $500m in cash, so its assets have been valued at about $900m. Included in this are a bunch of coal assets, but the market is probably ascribing very little value to them at the moment.

Most of this is taken from the announcement today.

-In terms of its AQA's iron assets the WPIOP is owned 50% by Aquila and 50% by AMCI

-2.2bt total project Resource 2 across entire area of c.9,000 square kilometres (AGO has about 1.2bt currently and resource upgrades are to be announced shortly)

-Stage 1 production of at least 30mtpa of West Pilbara Fines @57.1% Fe with a 1.13:1 strip ratio, mine life 13 years(as a comparison Atlas' Mt Webber has a life of mine strip ratio of 0.3:1 and a similar Fe content)

-Stage 2 production of 10mtpa

Greenfield heavy haul rail line linking mines to new Anketell Port
– Stage 1: ~280km
– Stage 2: ~150km

(Atlas Horizon II is about 120km from existing rail link from memory?)

-project has estimated rail and port costs for development of Stage 1 (30mtpa) and Stage 2 (10mtpa) of the WPIOP to be
$4,635m1 (July 2012) and $840m2 (December 2010)
respectively, plus EPCM, contingency and owners’ costs

So in summary, they have paid $900m for something that will cost them at least another $2.74b in rail and port capex to develop (their 50%,) plus the mine site establishment costs on top of this, to have production of 20mt/year (50% share) for 13 years.

I haven't found any details in regards to expected ongoing costs, but It would be fair to assume that they would be quite low. As a comparison FMG have average anticipated life of mine strip ratios of 3.5x at the Chichesters and 1.4x at Solomon and c1 costs are about $33US/t

Someone a lot smarter than me would have to comment on how all this really compares to the value of Atlas (probably impossible to do before the feasibility study is released), but a very simplistic way of looking at it for now might be to say that they have paid $900m for the right to develop something that looks similar to the potential of Atlas' Horizon II plans. Strangely at the moment It looks like market is valuing Horizon II at nothing!

Anyway it certainly makes me think that realistic potential in Atlas is worth a hell of a lot more than its current market cap. Shall we start with twice as much as a base and go from there :)

Yeatesy.