Iron Valley is contingious with with the existing Cloudbreak and Christmas Creek operations rather than the new Solomons hub which FMG is looking to defer.
They still ahve a production target of around 80mt for next year so expansion from 55mt needs to come from somewhere- you would think nearby deposits (35km from Cloudbreak) with low cost start up costs would still be attractive.
There was also much speculation about warehousing clauses in the agreement with FMG such that FMG couldnt just exercise the option and mothball Iron Valley for the future- Ocean Equities were of the view it would be a take or pay structure from a fixed start date- perhaps the IOH board may be willing to revisit these terms once final documentation is drafted.
So given FMG have already stumped up $20m for the option fee and the production cost benefits of Iron Valley in the overall contigious deposit I would think that there are still strong grounds to expect FMG to exercise the option, especially where costs of production will be more keenly managed.
According to Ocean Equities:
"In our view Iron Valley provides FMG a potentially attractive near term, low cost trucking operation exploiting outcropping high grade mineralisation which is expected to provide excellent blending material with existing operations at Cloudbreak and Christmas Creek. We believe the commercial logic for FMG developing Iron Valley before Nyidinghu relates to: permitting; reducing the lead time to, and improving the ability to ramp up, initial production; and, reducing upfront capex with initial mining at Iron Valley effectively being the pre-strip for Nyidinghu (which lies ~40m undercover at the tenement border) and being above the water table."
IOH Price at posting:
86.0¢ Sentiment: Buy Disclosure: Held
