Your post makes a VERY interesting point that I had not considered. i.e. 'optionality other producers don't,including dropping back to supplying 8-9MT of only higher grade ore.'.
I think the grade discount would have to widen dramatically for them to reduce production by 25% and be more pofitable than at 13Mt production. BUT as a takeover by a steel mill eg Posco, their high grade ore is VERY attractive.
My post was really just an analysis of FY15 using Goldman Sachs bearish Iron Ore forecast. GS's headline number $US80 is meaningless unless it is combined with their AUDUSD forecast of 80 cents. ARI FY15 = 25.2 eps in that scenario.
Arrium has a significant material benefit from a lower currency via the steel business that others like AGO & FMG don't.
My opinion on GS's forecasts...
I think Goldman's Iron Ore forecast of $US80 is wrong and not possible for any extended period (e.g. 3-6 mths) given China's domestic production costs. But if it was to happen the AUDUSD would be less than 0.80 and in the mid 70's or even below 70 cents. China's growth outlook would have to be much much lower or a black swan event/s in their construction and/or banking system. A scenario of $US80 and audusd in the mid to high 90's is only possible if our economy booms to above trend growth (e.g. 4%) or we have inflation above 4% that the USA doesn't have. So the reserve bank raises the cash rate to 4.5% very fast. I can't see how that can happen. Neither does Goldman Sachs with their combination forecast Iron ore at $US80 and Currency at 0.80 in 2015.
ARI Price at posting:
96.5¢ Sentiment: Buy Disclosure: Held
