mt webber cost disappointing

Mt Webber cost disappointing

¦ Announcement of Mt Webber mine go-ahead was disappointing on
cost guidance of $56/t FOB, ahead of our $48/t estimate (and vs $46-$50/t
for current mine suite). At $56/t, the mine is marginal and has a negative
DCF after $146mn capex. We believe extreme transport (ca.A$28/t for
230km on highway) elevates the cost. This provides a negative read-through
for Corunna Downs prospect as a trucking operation, so we cease
expansions in our model at Mt Webber stage 2 (12Mtpa limit) for highway
trucking.

¦ No profit margin at our iron ore prices: Mt Webber’s A$56/t FOB is
$74/wmt CFR after $6/t royalties and $12/t shipping with minicapes. Our
US$90/dmt iron ore price from FY15 translates to realised A$83/wmt for
Atlas blend, and the skinny $9/t cash margin is wiped out by depreciation. Mt
Webber mining costs should be low with favorable stripping of 0.5:1, so the
high costs apparently reflect the outsize cost of trucking 230km on highway
($28/t estimate) + the hefty Utah Point port charges ($11/t).

¦ Estimated A$39/t cost of port and haulage highlights the opportunities
if a rail deal can be negotiated, so a rail deal would be a catalyst for AGO.
If AGO could gain a rail haulage of A$20/t, and reduce port costs $3/t in its
new stockyard 2, Mt Webber would generate $11/t margin vs A$1/t on
current estimate. The feasibility study on a third party rail JV was due to end
in JunQ, but unclear whether AGO will have an update in Jun Q report.