Bear in mind anything speculated on below may simply be overtaken by events out of the company’s control. With a share price like this, sitting duck if not Peking Duck springs to mind. In fact if I was betting I’d bet on this happening before the deal.
re THE deal. Going by the comments made about the deeds drawn up by previous management, once Luke Tonkin came on board the likelihood of a deal appears to have dropped.
I believe that the judgement was that the proposed deal loaded with capex 2 1/2 times the size of MGX was a risk everything strategy. This perhaps more than anything else has stalled the negotiations. It may some time in the future go ahead but I doubt it would be in its present form if at all. (Additionally 4 year take off’s at appropriate pricing seems to be a sticking point too.)
As far as the Magnetite resource at Extension Hill I would think OPTIONS may include:
Sell the resource to someone else who would have the cash flow/capex capacity (CVRD perhaps or of course the chinese or even a local player. Like I’ve said before.. why wouldn’t BSL etc look it over?)
Look to develop it at a later stage when capex to market cap isn’t so skewed and construction costs are lower than today.
Sell off or reduce exposure to Asia Iron JV. (Bear in mind that the JV does actually have some value even without a Deal, ie it owns the rights to build the last pellet plant in China wholly owned/majority owned by a foreign Co. Indications are that all new plants will be majority Chinese owned. So some considerable value here.)
Construct a pellet plant utilising magnetite from other producers.
Personally I think a combination of the above will occur over time if a TO doesn’t.
Other general points:
The money spent on the BFS for magnetite produced a heap of info which will be utilised over the next 12-15 months during the BFS, construction etc for Extension Hill Haematite
Margins on produced pellets are being squeezed by CVRD intentionally to limit competition Ie ore prices increasing 19%, pellets decreasing 3%. This is particularly relevant if you’re considering either digging up another resource (Extension Hill Haematite) OR building a pellet plant in china.
Capex for Haematite at Ext. Hill around 65m vs 730m+ for Magnetite.
Luke Tonkin’s background as a trouble-shooter for WMC seems to have been particularly handy in light of the issues confronting prev. management. (Would appear there may not have even been an operations plan)
MGX now moving to adhere to a policy of strictly supplying grade of ore contracted. Previously supplied whatever came out of ground, now will blend with view to minimising penalties for undersupplying grade specified or losing up side from over supplying. This may present opportunities should other lower grade ore bodies present themselves or become available.
Geralton Berth 5 issues (access and ownership) very important in longer term strategy on a number of levels.
3mT production 2H 06 - this is critical. Fleet upgrades, personnel issues etc all resolved. I therefore presume this current quarter will be poor. Post July production should be 3mT
3mT from Extension Hill haematite, as mentioned before, planned (dependant upon WA Govt. PER approvals) from Oct 07. Therefore MGX could be producing 6mT haematite by end 07. At the sort of margins being taken now this is one big cash machine. AND potentially worth a lot more than 90cents/share
All up with the considerable work being done to turn MGX into an Iron Ore force with cash flow (as distinct from the host of explorers in the same region, with good ore bodies, little cash flow, little or no infrastructure access or ownership.. etc) I’m pretty happy the deal didn’t go through and that Management seems to have dragged this Co. into potentially a very strong position allowing for the possibility Iron Ore may stay strong until 2010-2012 if not indefinitely
Here I think patience is everything.
Again my opinion only FWIW.
MGX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)