todays action, page-3

the pattersons report is assumming a tonne load of CAPEX in building a rail link to FMGs.

That will obviuosly dilute the capital big-time.

BUT - WHAT IF BHP LETS US USE THEIR RAIL LINK???

The EPS would be MONSTROUS as there wouldnt be nearly as much dilution!

In any case theyre saying $250mill is needed in CAPEX

So lets assume an extra 150mill shares=options issued as a worst case scenario re dilution

Iron ore price of 70USD = 80AUD

costs say 48AUD like they say

80-48 =32 , lets say 30AUD per tonne profit

30AUD * 3mill tonnes = 90mill ; after tax 63mill

63mill/235 = 27cents per share (this includes a massive dilution of an extra 150mill shares+options and using 70USD IO price and 3mill proddy)

5mill proddy: 30AUD/tonne profit * 5mill tonnes proddy = 150AUD

after tax 105AUD

105AUD/235 = 45cents per share

So even if they raise the extra $250 mill by issuing an extra 150mill shares+options, theyre worth about $4.50 using a PE of 10

If they go 70:30 debt to equity, EPS is MUCH higher

Ive highlighted a worse comes to worse case scenario where $250mill funding is all done via EQUITY RAISING.

30% equity for the $250mill funding needed means theyll add 75 mill to the equity (250 * 0.3).

So the equity will be 85 current + 75 = 160mill

On 3 mill proddy : 63mill net profit/160 = 40cents per share

OK some money will go toards paying off debt, so lets say net profit of 60mill. 60/160 = 37.5 cents per share

5mill proddy: 100 mill (take off 5 mill for debt) / 160 = 62.5cents per share.

Obviously in PATTERSONS assumptions, theyve used a lower IO price in 2-3 years time.

I reckon 65-70USD will be an appropriate long term avg for now that prices are going to be WELL ABOVE 100USD with spot prices at $140USD atm which is double my long term assumption!

65 cents per share on 5 mill proddy and 70USD price and 30% extra equity, the rest debt.