Firstly it is a joint venture so GBG's entitlement to that 16mtpa figure is only 50%, ie 8mtpa.
Secondly initial production is actually 10-11mtpa (8mtpa from Karara, 2-3 DSO).
Thirdly we have a cost blow out on the initial stage 1 production. This will add more debt and dilution to the existing shares on issue.
Forth, we don't know if stage 2 16mtpa will be funded from existing cashflows or debt/equity.
You also need to discount GBG's expected cash flows, don't value GBG 'now' on its future profit. Need to discount for risk and time value.
MRRT should have a minimal affect on GBG during the first few years of operation and I am still not 100% certain on the taxing point of magnetite ore under the MRRT.
Regardless GBG is cheap at current levels given the current IO price. The big question is whether iron ore goes back to long term averages or sustains a long term price above $US 100? Personally I believe it will, and thats when true value will be recognised. GBG should be a $2+ stock once Karara is in production given our current amount of shares on issue.
Just take a look at the market caps of MGX and AGO. These stocks have no debt, but have short mine lives. GBG will have the debt, but the benefit is the long mine life of Karara with world class infrastructure to support it - rail, concentrator etc etc. This was always the appeal of GBG over the others for me, not to mention a large Chinese backer. Unfortunately I never believed in AGO.
GBG Price at posting:
79.3¢ Sentiment: Hold Disclosure: Held
