Will junior IO producers ever get fair value?, page-33

Hi Ned,
Back then the Fe boom was play on the massive China growth story that was never expected to end, and Fe was going to be needed to fuel that insatiable growth. Posters talked about a Fe shortfall, Australia hitting peak export capacity, Brazil in the doldrums, China/ Sino etc buying stakes in Aus Fe companies, Haematite vs Magnitite, and DSO (>60% grade) being the holy grail for ASX players, but even low grade (<35%) Magnitite finding its place and getting insanely pumped.
The Majors, then Mid-Caps, then specs, then IPOs all went gangbusters with the Fe boom, with many of the new players 10 bagging on exploration targets alone forget about JORCs.
Not many hedged coz why would you...Fe was only going up right. Some paid crazy dividends (if you got in early) coz they were making so much money (BCI and Atlas comes to mind).

When the bubble burst, it burst hard....and quick. From memory it only took 33 days from top to bottom (<$40/ton)

In my humble opinion the market learned a big lesson and will only attribute a 0.5-1.5x to cash to value Fe stocks on an EV basis. However, this is relative to their AISC vs Fe price. As the AISC and Fe price converges (gets closer), that multiple will fall. By the same token as the Fe price increases and AISC reduces the multiple will increase however IMO only closer to ~1.5x cash. MGX and GRR are good examples of this. The reasoning is mainly due to the protection of cash backing. As the ASIC > Fe price a discount will start to be applied coz the company will likely stop exporting at a loss, however management will still have salaries (some exorbitant) and other expenses to pay or may need to spend that cash on something new that requires drilling etc. BCI went into salt and still not producing any of that, but were smart enough to keep their IOH royality with MIN which allowed them to progress their salt asset. Imagine if they hadn't.

You just have to remember the big players are producing at signifantly lower AISC, and with volume. FMG doesnt even have the ~$10b debt overhand they had back then.
So dividends, LOM etc are all really irrelevant here from a larger perspective, its only AISC vs Fe price whilst the clock is ticking !

Cheers