Its difficult to point a finger in the air and assume a given target, but the slide in ARI is (in my opinion) all to do with debt and the associated covenants.
They are turning the steel manufacturing business around and there is more to come.
They export haematite (mostly DSO and little beneficiation so better margins) and the volumes are growing in the 2012/2013 financial year.
Sept and Oct typically see a lull in the IO price so I anticipate that it will rebound within the next month.
This is balanced by the fact that export volumes are expected to increase by over 60% for this financial year with the first major leap being that Peculiar Knob exports commence in Q4 2012.
In the second half of the last financial year they turned a positive EBIT from steel manufacturing. So that noose has loosened.
They knocked $99,000,000 off the debt in the last financial year and reduced their gearing ratio.
Free cash flow improved during the last financial year.
The business now faces the storm brought upon by the drop in the IO price and the ramifications that may have on debt being called.
It is more likely that should they be in breach of covenants that the banks will relax rules than call debt. That said, I don't expect that ARI will breach.
They're not out of the woods by any stretch and there is further work to do to with regard to steel manufacturing cost cutting.
For those getting in now, I believe there is a significant profit in the coming months. For many of us under water, we can wait or trade our way back.
Hope that made sense, because the share price doesn't.
GLTA
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