KI Update, page-56

What a terrible report especially the heading - MGX doubles down on high cost iron ore.

If you're going to state that the cost of the iron ore is high then Morningstar should at the very least also point out that the iron ore produced is the highest quality 66% grade and low sulphur so attracts a significant premium to the benchmark 62% price - currently about $US12 or 16 AUD. Clearly the author has no understanding of the iron ore market or what MGX sells since they did not once mention the premium once.

Also I very much doubt the average price going forward is going to stay at USD35 for very long - at those prices BHP, RIO, Vale and FMG will be returning very low returns on equity. If you were to assume a tax rate of circ 30% then the after tax price would be around $USD25. My understanding is that AISC for the majors is about USD$20 which leaves about USD$5 to cover interest, royalties and admin costs. Also you have to remember the Iron Ore has to cover the poor returns on the coal and aluminium divisions, plus there's the considerable depletion of reserves when almost 3/4 billion tonnes is being shipped offshore by the AUD majors - there's not going to be the sort of high quality ore around that KI has.

Also if IO is at $35 then the AUD should be lower - more like 70 cents you'd hope if not lower - the federal budget would be in a bad way from the loss of royalties and company tax so downside in US IO pricing should be offset partially by a lower dollar.

The author also fails to mention that there is a chance of another 7 million tonnes to be mined in due course.

To say there is no moat is just plain wrong - the company has $456 million in cash, $61 million in franking credits and 360,000 tonnes hedged at prices around USD70-75 in the near term plus there's the chance of an insurance payout on the business interruption.

But the worst of all was stating that all in costs were $46USD - the first page of the ASX release dated 27/04/2017 says that all in costs including capex and closing costs were $AUD53 or assuming a FX rate of 75 cents $US40 dollars. The do state on page 2 break even is if the 62% benchmark was US$46, but that ignores any premium.

GLTA/IMHO