sdl project is based off long term io prices

Hi,

Thought we could do with a bit of number crunching to make us all feel better.

Fines are at 132.2 USD per ton, contract for 2008. (reference http://www.econstats.com/rt_ironore.htm)

If we take into consideration UBS is forecasting a 15% drop in contract iron ore prices (refer to article at end for reference (courtesy of thegun, thanks)
We get $132.2 - $19.83 = $112.37 per ton.

Now SDL are pricing the project off USD $50 per ton (from memory but check latest presentation as I can't acces at present)Costs in first 7-8 years are based of $20 USD per ton and itabirite stage there after estimated at $30 USD per ton (from Hartleys latest report on SDL website).

SDL presentation says aiming for earnings of $1 bill USD per year.

Even with lower forecasts for IO prices we should expect double the earnings target.

A lower ore price is not bad news for SDL as it is for producers with higher operating costs. In fact lower IO prices could ensure it's scarcity for a longer period for when global markets recover this could happen as a result of lower IO prices eliminating smaller players.

SDL project is based off long term IO prices and can more than handle much larger depreciation in IO prices and still be very attractive through its shear size. Much like RIO, VALE and BHP have operated for decades. After all SDL is the 4th biggest IO project on the planet.

Regards

Disclaimer: DYOR, not financial advice, just some personal thoughts.

Courtesy of (thegun)2332 GMT [Dow Jones] Mount Gibson Iron (MGX.AU) tumbles 27% to 84 cents on news some of its customers have asked to delay iron ore shipments. UBS analyst Glyn Lawcock says this is an ominous sign for other iron ore producers and that until now the slowdown has only seen buyers cutting back on high-cost, low-quality ore. "This is the first time that we have seen evidence of pushback on high-quality material," he says. Lawcock says the news is a short-term negative for Mount Gibson, but the company will survive as it has low gearing, minimal short-term debt, strong cashflows and ability to defer planned projects if need be. Says news will put at risk market consensus forecast for an increase in iron ore prices in upcoming negotiations; UBS is forecasting a 15% drop in contract iron ore prices.