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Update: Mount Gibson Increases Its Production Guidance Again

Jan. 31, 2015 7:55 AM ET | About: Mount Gibson Iron Ltd. (MTGRF)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

Mount Gibson ships 1.2M wmt iron ore in Q2 FY 2015 and increases its full-year guidance to 4.8-5.2M wmt.

The updated guidance is a very nice surprise and I hope the company’s production costs remain at an acceptable level.

The investment thesis will change completely now the Koolan Island pit had to be placed on care and maintenance. An in-depth article will follow soon.

Mount Gibson Iron (OTC:MTGRF) has announced its production results for Q2 and H1 FY 2015. I was looking forward to these numbers in order to be able to release an in-depth article on Mount Gibson as the company's situation has changed quite dramatically in the past few months. As you might remember,Mount Gibson had to put its profitable Koolan Island mine on care and maintenance after one of the walls collapsed. This will also lead Mount Gibson to record an impairment charge to the tune of A$850-950M ($710-790M) when it will publish its financial results (which is expected later this month).
Mount Gibson shipped 3.1 million wet metric tonnes of iron ore in the first half of the year and just 1.2 million tonnes in the fourth quarter of calendar year 2014. After slashing its production guidance, Mount Gibson is now in a position to increase it slightly to 4.8-5.2 million wet metric tonnes. The company received $60/dmt as a FOB price during the quarter which is actually pretty good (considering the current low iron ore price and the transportation costs which are approximately $8-10/t to ship the ore to China). The company has also started talks with its insurer to see if any claim could be filed to recoup some of the losses caused by the failure of the seawall. This will however be a very lengthy process and the outcome is unsure, so shareholders should actually ignore this for the time being. Fortunately, Mount Gibson had been saving up a large part of its profits for a rainy day and because it has a cash balance of in excess of A$350M ($275M), the company shouldn't run into any near-term financial problems.
The situation has changed rather dramatically at Mount Gibson and now the dust is settling down, it will be interesting to see if Mount Gibson has a plan to increase the output at its other mines to compensate for the production loss at Koolan Island. The company's iron ore was sold at a very decent price in Q4, and I hope this trend continues for the remainder of this year. I will write an in-depth piece on Mount Gibson shortly as the 'new' Mount Gibson haschanged rather dramatically from the company I was actually quite positive about.
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