update, page-9

TFG,

Good post, always good to take a breath and re-evaluate the situation. I just returned from a week down at Perisher, enjoying the best snow sking in 10 years and CAP has been causing me to wear dark coloured underwear over the last few days :)

Below is a long post: it covers my thoughts on CAP, some commentary on iron ore producers and general future exploration activity in the iron ore sector.
For me, Cap has the following Pros & cons at the moment:

PROs:

* Excellent resource with huge potential upside.
* Experinced and stable management team.
* Local community support.
* Largest shareholder has an average price of approx 42c (Silvergate, same Director as ASI, who was partner with BMG).
* Second largest share holder has average price of approx 36c+, Mr Yue (anybody able to confirm his average price).
* Most companies are cutting back on exploration with the iron ore price depressed. Hawsons is already a solid project.
* Chinese interest in CAP (Yue & Silvergate).
* Top 20 shareholders extremely stable.
* No native title issues.
* SP drop on small volumes.
* NPV of Hawsons is $3.2 Billion, CAPs market cap now at $25 million.
* The actions of Silvergate IMO demonstrate that Hawsons is a project that they want and will fight for. I doubt they are throwing "good money after bad".

CONs:

* Cash is getting low, less than 12 months left at current burn rates. A capital raising at these prices would be terrible.
* The buy depth is the weakest I have ever seen it.
* Locking in a J/V partner is taking much longer than I envisaged. I think CAP management also thought it would be resolved sooner.
* Chinese manipulating iron ore pricing. The two largest shareholders in CAP are both supposedly representing Chinese interests. Will they work together or compete against each other in a potential takeover offer?
* CAPEX involved with getting Hawsons started.
* Only real asset is iron ore related, no proven or exciting gold, copper or other metal projects on the go.

On the iron ore price front and the viability of BHP, FMG, etc, below is an interesting piece from James Gerrish of Novus Capital. It makes you appreciate the grade Hawsons holds.

"IRON ORE PRODUCERS; UBS put out an interesting report on the Iron Ore sector last week, researched by Glyn Lawcock. This comes after the price of ore has dropped like a brick below $90 a tonne - to sit at $88.

That's not actually the price that most miners achieve but it is the spot price. The actual price achieved by the miner takes into consideration the quality of the ore, the moisture content and of course the freight. Freight costs about $10 a tonne, while in the case of FMG, their ore is 58% fe v spot px which is 62% - so they discount it for that. Moisture content is also relevant an in the case of FMG, the discount you need to apply is about 9%.

This suggests that FMG is getting about $66 for its ore - about $10-$11 less than BHP and RIO. Cash costs for FMG sit around $52 a tonne while depreciation + amortization account for $5 - total cost = $57 v price achieved = $66 - with Iron Ore at $80 - FMG is only breakeven".


IN THE AFR

ARRIUM (ARI) & IRON ORE

Analysts are watching Arrium's earnings closely as the recent fall in the spot iron ore price heightens the risk of the company breaching debt covenants in financial 2013.

Broker Goldman Sachs removed the steelmaker and iron ore producer, formerly known as One Steel, from its conviction list on Monday, on fears that it might miss covenants.

Goldman Sachs said that if the spot iron ore price remained at $US91 a tonne in the 2013 financial year, Arrium's EBITDA-to-net interest would be about 3.5 times. Its covenant level was believed to be 3 to 3.5 times.

Goldman Sachs said every $US1 a tonne change in the iron ore price had a 3 per cent impact on Arrium's earnings per share estimates.

Falling iron ore prices has cast a shadow over iron ore projects in recent weeks, including the $9.5 billion Roy Hill project, and seen iron ore miners' shares come under pressure.

On Monday morning, Broker Patersons Securities told clients that investors should expect large writedowns to iron ore companies' expected fiscal 2013 earnings.

"We believe there could be downgrades to NPAT estimates of 55 - 96 per cent for the producers," Patersons said".

On the exploration front (James Gerrish):

MINING SERVICES; Boart Longyear (BLY) came out with its results last week and I think it has ramifications for other mining services companies further down the production cycle.

To give you some background, Boart Longyear (BLY) is the worlds largest supplier of drilling rigs - with 1200 rigs in 40 countries. They delivered a record half yearly result & increased their dividend by 33%. That was the good part. The disappointment came in their downgraded full year guidance amid weak demand for its rigs.

Drilling mostly occurs at the exploration stage and if they're seeing a sharp reduction in rig utilization, that suggests a lower level of exploration activity which flows through to companies exposed to the development and production phases - who are likely to see the impact on earnings in qtrs ahead".