world class deposits; world class disasters, page-34

World class deposits mean zero if they are in the middle of nowhere and billions need to be committed to bring the product to market. In these instances a takeover, massive CR and debt financing, JV or offtake agreements or a combo of these are required. Generally this only happens at the top of cycles. Managers aren't savvy enough to expand their businesses in times of uncertainty (ie the bottom of the cycle). SDL wasn't worth sh*t until hanalog decided it wanted in.

Let's take AKM as an example also. Ovoot has about 180mT of recoverable and high quality coking coal. It is the second largest known coking coal reserve in Mongolia. Tavan Tolgoi being # 1. It has an internal rate of return of 43% based on a long term coal price of $200 USD (a stupid assumption). The coking coal price is hovering around $150 atm. So let's shave about 14% off that IRR to 30%. That's still a big return. It is a good endowment of resources. But what does that really mean when someone needs to commit CAPEX of $1.31 billion at a minimum in a potentially unstable operating environment?? It means that the price retreats from $1.00 back to $0.073.


FYI - i hold some AKM.