ubs says sell fmg buy gbg, page-32

Yes, it wouldn't surprise me if the Rudd government bends over backwards to keep Karara running. However if KML was in a position where Karara was no longer profitable then all IO miners in Australia would be in serious trouble. This would INCLUDE FMG, and it's copious amounts of debt. Only the most efficient, ie BHP and RIO would survive as their margins support the old long term IO price. This is another doomsday statement Major.

No one wants our Iron Ore, except China, that is obvious. China is by far the most significant consumer and importer of IO.... I never said anything else...

Yes BHP and RIO all knew what was down in the Midwest. BHP and RIO were only interested in DSO, and given the old margins on IO a small scattered patch of hematite was not feasible. However WMC (which was t/o by BHP) did mine throughout the Midwest in the 1970s and consumed the large viable projects that RIO or BHP would have been interested in. Apart from the small scattered DSO deposits remaining in the midwest, the majority of it is magneite - something BHP is not interested in. RIO mines a small amount but not in Australia. The lack of infrastructure in the midwest requires a huge CAPEX for these large magnetite projects, something only the Chinese are now willing to do to ensure an alternative source of IO. Given BHP and RIO have in excess of 20bt of high grade DSO in the Pilbara, their is absolutely no point for them to even consider mining magnetite. Margins will always be better with the high grade DSO. Our magnetite is premium product, but our margins will never compete with the majors. We are simply an alternative supply for the Chinese.

FMG ore is rubbish Major, you have to be deluded to think otherwise. However it is still feasible to mine, and can be used by the steel mills. China are desperate for IO, no questions about it. However if IO prices continually fall in your doomsday scenario then both FMG and GBG will suffer, maybe even fall under. FMG's margins are not competitive with BHP/RIO, I doubt it ever will be given the discount it receives.

I never said Forrest was an idiot, I think what he has done is amazing. Riddick is the one who mentioned his past at Anaconda. What concerns me with FMG is the ability to pay back that proposed debt, and potential cost blow outs.

Forrest has publicly stated he is against further dilution, but I am interested to see how he pays backs all this debt given the current cash flow on the 27mtpa operation. To simply put it Major: FMG needs to reach its desired 40mtpa tonnage from its current infrastructure. It has not reached this target, infact not even close. The logistics involved reaching 90mtpa would be significantly harder, yet FMG hasn't even delivered it's 40mtpa operation... I think FMG needs to slow down and show they can utilise what they already have. The thought of increasing debt by $US6 billion is unsettling.