OK Guys...here is my take on the BGD situation...what I think...

OK Guys...here is my take on the BGD situation...what I think the share price will do etc.

As Gizard says...yep..this project has been on the chopping board for a long time...I can see as far back as 2004.

They planned to build this mill in Ipswich but now have an area planned in Gladstone QLD.

BGD seems responsible only for the building of the steel mill and has contracted a Chinese consulting firm called CISDI Engineering who will help BGD design the mill:

http://www.cisdi.com.cn/en/newsdetail.asp?id=1050

The steel mill will be developed in 2 stages, Stage 1 making a plant that can pump out 2.1 million tonnes per annum (Mtpa) of semi finished steel product called Bloom and Round Billet high quality steel. After stage 2 is completed which adds another 2.9Mtpa potential output of this steel...a total of 5Mtpa will be possible.

This product is not destined for our local market...I'm assuming the middle east for other steel mills which then use it to make the steel products in the shape etc they want to use the steel in.

Money wise....a member of the Saudi Royal Family will be supposedly financing both stages of the project which looks like it could cost around $2.8 billion, 1.4 billion for each stage.

The site where they plan to build the plant is shown here:


http://www.environment.gov.au/cgi-bin/epbc/epbc_ap.pl?name=show_document;document_id=33187;proposal_id=4786

Here is a pic I took from Google maps:



Worth having a look on Google maps...search using the terrain image or map for Aldoga Queensland....you can see the port nearby.

With respect to what else is needed....they also need a multi-user port at Fisherman's landing...Port Curtis QLD which the Gladstone Port Corporation will build and maintain.

A power plant will be needed and built / maintained by some third party which one supposedly already expressed interest.

A haul road form the port to the Steel mill site will also be needed and built / maintained by another 3rd party and also a rail sliding / load out point to get coal to the site.

The haul road will be used to take finished product back to the port for shipping overseas.

So BGD is just building / running the steel plant.

Where the project is at right now is that an EIS Environmental Impact Statement is being conducted by some consultancy...not sure who.

The project is proposed for the Gladstone area which means Gladstone council needs to give permission and they are waiting for the EIS.

Not sure how long the EIS will take but with Worsley Parsons IAS report being done back in 2008...I would say this will be given to the authorities for passing pretty quickly as they have covered a lot of the flora / fauna in the area in their IAS. The EIS will do soil / water / air testing etc and add that in with a recommendation.

Once the EIS is in...the local / state (anna bligh) should pass it and the plant will begin.

I understand Gizard thinking its the boy who cried wolf as when it was announced in 2004...nothing has come of it until now.

Right now, we have the QLD government promoting the end result of it already to the media so permission wise, it looks to get the go ahead and be the real thing now.

The only thing delaying the project from commencing construction is the EIS.

Now valuation.....such a tricky thing.

Since the Saudi's are financing the project, I'm unsure of the contractual arrangement between them and BGD.

Anyway....this steel seems to be selling for around $450 per tonne.

You can track steel billet pricing here on the London metals exchange:

http://www.lme.co.uk/Steel_Med_Prices.asp


The price has gone up 50% over the last 6 months.

At around $450 per tonne of finished product, BGD would be pumping out approx:

$945,000,000 worth of steel once Stage 1 is complete

$1,305,000,000 worth of steel once Stage 2 is complete


or when the plant is fully operational, ie:: both Stage 1 and 2 complete and pumping out the finished steel products for shipping:

$2,250,000,000 or $2.25 billion worth of steel each year.

With the Saudi financing this whole project, I am unsure if the financing is a loan or if they will own the project and pay BGD a commission per tonne shipped...maybe someone else knows the relationship here between BGD and the financial backer.

But I've read up on cost of production of steel billets and don’t quote me as this may be wrong but profit margins seem to be in the vicinity of 11-17%.

Lets say 14% profit to the BGD / Saudi connection

After stage 1 is complete and in production, they should be selling around $935 million worth of billet per year so 14% of that is profit.... giving approx $132 million a year.

Stage 2 would see 14% say of 1.3 billion a year or $183 million a year profit.

Once the mill is fully operational, they would be getting around $315 million a year profit.

The steel mill they say will run for 50 years. I personally doubt it, but who knows. That’s 50 x 315 million gives 15-16 Billion profit.

Snicket asked about the market cap of currently around $100 million based on 483 million shares.

If you go back over the events / announcements for BGD..it spiked and held comfortable around 60c for quite a while and actually had (thanks for your 2006 posts Gizard) over 40 days in a row of the shares opening higher than the previous day.

Market cap wise...this would have been around 500-600 million on the suggestion that the Steel Mill may go ahead.

Since it wasn't from 2006-now....the share price fell a lot and we have just now received information that the EIS is being completed and about to be lodged with the EPS / Government / Council etc.

So my belief is that we'll see a substantial run on the share price from now until permission is granted.

I don’t want to predict to heavily what the market will do as who can sum up what people will pay once news gets around but I can see BGD quickly trading around 60c but possibly more since this time, project permission seems granted on the proviso the EIS is received well by the EPA etc.

Looking at the Worsley parson IAS report

http://www.environment.gov.au/cgi-bin/epbc/epbc_ap.pl?name=show_document;document_id=33190;proposal_id=4786

and being an environmental engineer, I personally don’t think the flora / fauna impact will be a problem.

The only thing I think will be looked at closely is the amount of carbon dioxide pumped out per annum...and with the recent hyping of the carbon trading etc...I'm not sure if BGD will have exemptions or what will be the deal but steel mills pump out a lot of CO2.

Timing wise and from the announcement:


"Construction of Stage 1 is expected to commence in 1st half of 2010, with production scheduled to begin in 2012. The estimated project life is 50+ years."

So that’s my take on the situation. The rise on Friday seems in my opinion to continue until around 60c.
Traditionally the options have lagged by about 20% consistently which is strange but they may be free carried sellers so a BGD share price of 60c might mean the options are still 40-45....who knows.

I'm confident this project will go ahead and start next year.

Its got enough ticks in the boxes for me to buy and hold and buy some more on any weakness.

Would love to hear any other calculation or information others would like to share, negate mine etc.


One last thing. As BGD trades on the DAX in Germany, I notice shareholders have formed an alliance or club proposing to have 200 million shares / votes.
Here is a website they have made:

http://www.boulder-aktionaersclub.de/



I cant see this being correct when ANZ is said to have 87% of the company’s shares which I believe to be true.

That does leave 62 million shares for us of which 21 million we’re traded the other day so I see it as a very tightly held share where big jumps in price are possible.