Courtesy of @mowitch on the FMG thread. [April 19] Mysteel Iron...

Courtesy of @mowitch on the FMG thread.

[April 19] Mysteel Iron Ore Index

	Grade	Product	Index	Change
1	62%	Australian Fine	64.4	+3.5
2	58%	Australian Fine	53.75	+3.3
3	65%	Brazilian Fine	76	+4.25

What's relevant about this is the premium 65% ore gets to 62% ore. US$76 to $64.4 or almost an extra US$12 a tonne. My understanding is that KI  ore is around 65 - 66% so should be getting around $76 at tonne or AUD 100. At the last company presentation the CEO seemed to think that KI was the highest quality ore in the world (his words not mine) because of grade and sulphur content.   KI is going to be able to compete with any other mine in the world so I don't know why the market continues to discount it.

Assuming costs of $40 AUD (Macquarie estimate) and 15 million tonnes reserve then KI would still be worth building at current prices. 15 million tonnes @ $60 margin is worth 900 million before discounting and startup capex of around $100 million.

If the Environment department wants two walls this may not be a bad thing as it would derisk the operations and may allow the company to build a bigger pit. The mine reserve before the wall collapse was 28 million tonnes - so if the second wall cost an extra $60 million, it may be worth it if it meant a larger mine. At $60 a tonne margin they would only need to get another 1 million tonnes to pay for the second wall, but may be able to get more. And extra 13 million tonnes would yield another $780 million. Note my figures only and probably optimistic but just saying MGX and KI shouldn't be written off yet.

Finally the old chestnut issue of capital managment - why there isn't a share buyback in to take advantage of these low prices is beyond me. The share price is trading 15% below cash backing and probably 50% if you take into account franking credits, hedging, stockpiles and risked value of KI. Buying back shares is a riskless double digit profit - why aren't managment doing it?

GLTA/IMHO