Guys Some useful information from Macrobusiness this morning -...

Guys

Some useful information from Macrobusiness this morning - in particular they are talking about the premium lump ore has been receiving - they quote UBS who has been speaking to MGX and I quote:

"Mt Gibson Iron (MGX) saw its discount to the Platts 62 index lift above 40% in JQ 17 as a result of remnant mining at Extension Hill which saw iron ore grade drop down to ~58% Fe from above 60% Fe. With MGX having now commenced mining at Iron Hill the grade on average will lift, but MGX management said its fines product is receiving a 30-40% discount, while lump is receiving a 10-15% discount before adjusting for the lump premium"

As per @frankycc post on the 02/09 the average 62% Platts benchmark price for July and August was US$67 and $US75 - the price to date for September would be around $US74 so assuming no major variance in the next two weeks we are looking at around $US72/73 for 62% Platts for the Sept 17 quarter.

The average premium for lump is around 33% but that has risen throughout the quarter so I will assume an average of 20% lump premium and an FX rate of 80 cents. Iron Hill is forecast to produce around 5.5 to 6 million tonnes over the next 6 quarters to end of CY18 or about 1 million tonnes per annum. Of this about 55% is lump and 45% is fines as per my discussion with the company. i.e. 550,000 tonnes of lump and 450,000 tonnes of fines.

I assume a cash cost of AUD50 per tonne.

With this figures I estimate the following cash flow from Iron Hill for the September qtr

Lump
US72.5 *.875 (average  discount) x 1.2 (premium) divide by .8 (FX rate) less AUD50 (cost) * 550,000 tonnes = $22 million

Fines
US72.5 *.6 (average  discount) x 1 (no premium) divide by .8 (FX rate) less AUD50 (cost) * 450,000 tonnes = $2 million

All up about $24 million i.e. 22+2 - I'll settle for $20 million.

Admin costs are about 1.5 million a year - most of this should be offset by interest received so I ignore for the sake of simplicity.

The MB article quotes analysts saying they think the lump premium should stay until at least year end before coming down next year.

With Iron Hill making a tidy profit you have to wonder why MGX trades at below cash backing.  Its quite feasible that should a reasonable lump premium remain throughout CY18 that Iron Hill can fund KI capex so there really is no need to discount upfront costs for KI.

Also as regards earlier comments about blending - Iron Hill will be finished before KI starts so there isn't going to be dilution of grade from KI so still calling for a valuation of between $500 to $1000 million for Koolan Island

GLTA/IMHO