understanding comments on cashflow

I agree with those who say “Do your own research”. In doing my research I haven’t been able to reconcile some recent statements of cashflow with current prices and would appreciate some assistance from those at Hot Copper who may have considered this and come up with an answer or just know more than me.

The Company Insight report dated 21 December 2010 has Finch with a saying “Prices for 62% Fe fines are currently around US$160-170 per tonne CIF to China and our operating cost is expected to be around A$85 per tonne excluding freight costs. That will give us a margin of more than A$60 per tonne and operating cash flow of around $100 million per annum based on the 2mtpa production rate. There will of course be a ramp-up period to get to production capacity”.

IFE’s letter to shareholders dated 25 March 2011 states “Based on our exhaustive feasibility study, we are currently assuming an average iron ore price of A$133 net of freight charges into China (current pricings are about A$144 net of freight costs), initial operating costs of A$85 per tonne and robust margins of approximately A$50 per tonne”.

The Company Insight report dated 10 January 2012 “Our feasibility study for Stage One of the project established that, with an average iron ore price of A$135 per tonne FOB (net of freight charges) into China and initial operating costs of around $85 per tonne, the project would provide IronClad with strong margins of approximately A$50 per tonne and an operating cash flow of around A$80 million per year at full production during the first stage”.

The first quote shows landed price in China and the next two show FOB or net freight costs. What doesn’t seem to reconcile is the current FOB ore prices to those from the feasibility study recently referred to.

I understand stage one is forecast to be 62% Fe. Platts index has 62%Fe at $141.50. At an Fx rate of 1.03, that means A$137 per tonne. However, I understand this is landed in China, and not FOB. Therefore, with costs of $85 per tonne, doesn’t the margin become closer to $20 to $30 per tonne (assuming no cost of production blow outs in early stages and price of ore stays at current levels)? Am I missing something or do we need a return to March 2011 iron ore prices in order to achieve operating cash flow of $80M?

This is not a post to try and dampen IFE enthusiasm (it would be great to see a junior explorer turn profitable producer in the current market). I am genuinely trying to understand the potential risks and potential returns and appreciate any assistance.