I have been reviewing my investment in IOH as nothing seems to...

I have been reviewing my investment in IOH as nothing seems to have progressed much in the last year.

I too looked at the Ocean Equities report and read the options that they saw. I thought that there was a laziness in their identification of the options, because these are the only options that do appear to be open. (What else is there? IOH appear not to be able to mine on their own account due to a lack of infrastructure.)

I also went back and reviewed everything that I could find on the net.

To me the answer to which option IOH will choose is the creation of a jv with FMG. In January IOH announced the recruitment of five staff. These staff are necessary only if IOH is to mine. This is evident in their job titles. Apart from Iron Valley IOH have no other project that is remotely close to advancing to production.

Why do I see that a jv with FMG is likely?

There appear to be many benefits for FMG.
1) There has been considerable comment on these threads that a mine plan that goes up through Iron Valley will save FMG $600 million.
2) If FMG does form a jv then it lessens the likelihood that Queensland Rail will be able to develop rail as a significant potential user {IOH) will be removed. In turns this makes it so much harder for another competitor to develop rail.
3) There will be a considerable saving in one shared mine development rather than two.

What are the advantages for IOH?
1)They need access to infrastructure.
2)A joint development will produce an extra 13 million tonnes (see the PFS study Aug 2011)
3)They need access to capital for development.

Many have postulated that the model for a jv will be that of the jv of FMG and BCI. This was a 50/50 deal where BCI gained access to FMG infrastructure and both parties shared the costs of development. When the deal was done BCI had reserves of 46 million tonnes so the infrastructure cost BCI about 1600 million in todays dollars. (They surrendered 23MT which had a before tax value of 23mill x $120 (sale price of iron ore) - $50 (operating costs)). Because Iron Valley has a resource of 160 million tonnes or more depending on how it developed IOH is unlikely to surrender 50% of this without any other compensation.

This is where the discussion regarding the Rio/Hancock jv is important. I have been unable to find the exact terms of this. I do note that Hancock is entitled to a 1.25% royalty from Hamersley (worth about $170mill/year.)

I also note the comment that IOH has no need for additional capital. It could be that IOH envisages that funds will be derived from an offtake agreement, but I see it more likely that FMG will assume responsibility for the development costs of the jv. This would still represent a great deal for FMG in terms of the savings for them in developing Nyidinghu; and the returns from ownership of an additional 86.5 million tonnes of ore.

The appreciating share price suggests interesting times ahead. Even without the support of the current buy-back the share price seems to be holding well at current levels.