Valinvestor has raised a good question in relation to the iron...

Valinvestor has raised a good question in relation to the iron ore content and also the level of phosphorus in the Energio iron ore final product.

Mgt expect the beneficiated iron ore to have an iron content of 58%. This quote from "The Eureka Report" explains similar products and pricing:

"Very few Australian miners are working deposits as rich as 62%. There are pods of material in that category (and higher), but the best ore has been largely mined out.

Atlas Iron, for example, reports on a grade of 57.5% iron, but that will vary from deposit to deposit, and from cargo to cargo. Mt Gibson quotes a grade of 60% iron, and BC Iron reports on 57% iron content in its orebodies.

What that means is that the widely-quoted Platts price on ore assaying 62% iron shrinks on conversion to Australian dollars, but shrinks much further on conversion to the grade of ore being sold.

As a rough rule, the real price received by Australia’s smaller miners shipping out 57% ore is about 87% of the Platts price, meaning that the current Platts price of US$113.50 (after the dollar conversion, and after the quality deduction), is closer to an Australian dollar price of $94 a tonne."

Read more at EurekaReport: http://www.eurekareport.com.au/article/2012/8/17/commodities/iron-ore-crush#ixzz2Bz5s69wB

Note that the Platts price is now higher than at the time the article was written, at around US$122. Thus 57% iron ore can be sold for 87% of US$122 or US$106.

A contact of mine spoke with Nathan Taylor, non-exec director at Energio, and was told that after the beneficiation of the iron ore there will still be a high phosphorus level. But importantly, this phosphorus is not attached to the iron so it can be burnt off by the steel mills. This attracts a further price deduction of $4-$5 per tonne. (Therefore, the high phosphorus level is really not much of an issue heres.)

Thus the price Energio's ore product would receive if it were being sold today is about US$100. Given Chairman Ian Burston's statement that he expects the cash cost of production to be US$50, that's a US$50 margin.

At 20mtpa that equates to $US 1 billion in revenue.

Given that the infrastructure capex will be very low, this is likely to be a very high IRR project.

(All IMHO, and happy to receive constructive criticism).