The Mole,My thinking is that the value of KML magnetite ore...

The Mole,

My thinking is that the value of KML magnetite ore deposit should be treated as the potential credit against the A$231m Contingent Liability the Board are concerned of. I would therefore prefer to put a monetary value on it in the same way as the Lodestone magnetite ore deposit.Moreover the Board has emphasized on the intention of getting out of the capital intensive iron ore mining and instead focus on low capital copper cobalt mining. An out right buying out the balance of magnetite ore deposit by Ansteel will therefore be a cleaner way.

The monetary value can be work out in the following way:

1. Based on royalty of 0.7689%, current CommSec rate for the Spot Price IronOre (62% grade Fe) of US$86.2 or A$122, the royalty amount is A$7.5 millions a year for a production of 8 million tons of magnetite concentrate.

2. The 2,300 million tons magnetite ore deposit can support the production of 8mtpa plant for about 100 years and the associated NPV of A$7.5 millions royalties for next 100 years at 4% discount rate would be A$183 millions.

3. If the plant is upgraded to 16 mtpa, the royalty amount would be A$15 millions a year over a production period of 50 years. The associated NPV of A$15 millions royalties for next 50 years at 4% discount rate would then be A$322 millions.

4. Non Ansteel GBG shareholders own 707m tons of magnetite ore deposit (2300 x 30.76%) and the monetary value can be calculated in the same way as Lodestone tenement. Since KML is a producing mine, a nominal rate of A$0.40 to A$0.50 per tonne can be considered. At A$0.40 per tonne of magnetite ore (equivalent to A$1.00 per tonne of 65.5%fe magnetite concentrate), the buy out value is $283m in between the above NPVs of A$183m and A$322m.