Beardy forget last year's numbers on Arrium's Iron Ore as included first part of financial year with higher IO prices, plus included lot of ore/wind down costs/etc from no longer operating higher cost Southern Iron operations.
Arrium has to take a haircut on realised benchmark Platts price (62%) due to its slightly lower grade (58/59%). Can work off achieving 89% of the reported benchmark price as safe rule of thumb for Arrium (although there are times where it can get up closer to 92% depending on blends/grades).
Best snapshot of current cost/profits on Iron Ore ops is page 44 of Annual Results Presentation, and the last page which explains analysts forecasts range - they've adopted US$53 being the mid-point of analyst consensus forecasts for the average over FY16 financial year.
THE RELEVANT SLIDE IN BRIEF:
“Targeted average cash breakeven price lowered to ~US$47/dmt”
Mining - indicative FY16 MBR financial profile
FY16 Consensus
A$/t US$/t
Iron ore price (dmt) 73 53
Arrium realised price (dmt)
(~89% of Platts 62% Fe CFR Index) 65 47
Loaded cash cost (wmt) 35 25
Total cash cost (dmt) (CFR China) 53 38
Arrium realised price
LESS total cash cost 12 9
Capital expenditure 6 4
Realised price less cash cost and capex2 6 5
Note these numbers also reflect AUD:USD of 72c, so at current exchange rate of 69c they will do better than the above. All in all should give you comfort they have moved aggressively down the cost curve (like all IO producers), & FY16 numbers should look a LOT better than FY15 now that Southern Iron behind us.
Expect some IO weakness when Roy Hill comes on line next month, but all in all Arrium should be well placed to ride out any weakness in IO prices (they are not a one trick pony), even if did have to subsidise slight losses from their IO operations from time to time of low prices.
ARI Price at posting:
9.8¢ Sentiment: Buy Disclosure: Held
