ARI (Arrium) : At Rock bottom, ore not?

[percy]

I thought you said around .20 was close? Slightly more optimistic than s d who I suspect hasn't yet bought his 50th tranche.

Better order some chrome balls camo.

Make those LARGE !!!

[airedale]

Hi KW, agree with that, check out the long term monthly chart also helps and there is no sign of any lift off there.

[cloggs]

From The Australian Financial Review

The forecast average iron ore price is to be downgraded to around $US60 in next week’s mid-year budget update, resulting in a revenue write-down of more than $9 billion in two years and pushing back any hope of the budget returning to surplus.

The revenue losses from iron ore will be in addition to the write-downs that will come from falls in the coal and gas prices, which are linked to oil.

The mid-year economic and fiscal outlook, known as MYEFO, is pencilled in for early next week. Data out on Thursday showed unemployment has inched up to a 12-year high of 6.3 per cent.

While there will be more savings announced in MYEFO, including cuts to foreign aid, Treasurer Joe Hockey has ruled out a mini-budget to chase the revenue losses from *falling commodity prices because it would hurt the economy and cost jobs.

The iron ore price is now around $US68 but sources said MYEFO would contain forecasts based on an annual average price of around $US60.

It is believed this estimate was arrived at following consultation with the industry as well as the Treasury and is in keeping with Mr Hockey’s tendency to prefer conservative estimates and forecasts.

On Wednesday night, federal frontbencher Josh Frydenberg said the revenue losses from the fall in the iron ore price since the May budget were $9 billion.

“Iron ore prices have fallen by 35 per cent since May. This is $9 billion in our revenue projections just over the next couple of years,’’ he told ABC Radio National.

If the MYEFO forecast pushes the price down to $US60, as expected, the revenue write-downs should exceed $9 billion.

Mr Frydenberg also alluded to the pending falls in gas revenues.

“Australia is set to become the *largest LNG exporter in the world by 2017, overtaking Qatar, and what’s happened? The oil and gas prices have fallen dramatically. This hurts us,’’ he said.

The federal government will use MYEFO and its ballooning deficit predictions to pressure the Senate to think again about blocked measures worth $28 billion over four years.

After dumping the $7 GP charge for a compromise package that includes an optional $5 payment for non-concessional payments, the government looks to secure $3.6 billion of the $3.5 billion in planned savings.

On Thursday, Prime Minister Tony Abbott flatly ruled out increasing the Medicare levy to help meet the spiralling costs of universal heath.

“Too many people think that tax increases and more regulation is the solution to Australia’s problems,’’ he said.

The unemployment figure is the highest since 2002 but masked strong jobs growth in November, when 42,669 jobs were created.

That was the biggest jump in employment since March 2012, when 66,200 jobs were created, according to the Australian Bureau of Statistics’ seasonally adjusted data.

The Australian Financial Review

BY PHILLIP COOREY

[Snoopy]

Not going to happen for awhile, as the sp is a country mile below both the 50 EMA [31 cents] and the 200 day EMA [63 cents].
The death cross on 1st May when the sp was .99cents has proved correct.

ARI seems to be being pushed around by the iron ore price, although I don't see it as a single variable iron ore play. But if the market wants to do that I'll go with that. It doesn't affect my long term strategy.

As many here know, I don't use charts. However, if I did I would be using a 30 day EMA short term and a 90 day EMA long term. Why? 30 days corresponds to one cycle between board meetings. This if things were going to happen driven by management that seems a good measuring stick. 90 days corresponds to the stock pile time those big steel refineries in China like. So this is the kind of time frame you might have to wait before you see a step change in buyer behaviour.

If anyone can tell me why I would choose 50 days or 200 days as alternative indicator periods I am prepared to listen. Personally I can't see any reason at all to choose those though.

Oh and the death cross hasn't proved correct. Arrium is not dead!

SNOOPY

[Snoopy]

Ummm 15.7 ....where is the bottom.....time to sit on hands till moving averages cross?

Just wait until the index selling is done Cammo. Remember index selling is completely brainless. When the robot says 'sell' the shares are sold. No consideration given to FA. No respect of fibonacci extrapolated support levels or long term price averages. In some circumstances you might expect bargain hunters (like me) to come out of the woodwork. But ARI is quite well capitalised with plenty of liquidity about. Very difficult for even a big player to reverse the trend of the brainless ones. No dividend imminent so no need to buy up withing any medium ternm timeline.

Wait for the brainless ones to empty their suitcases then buy on or about December 19th. That's my plan. Alternatively if you want to pay more for no good reason wait till the cross of some made up averages.

SNOOPY

[Snoopy]

From The Australian Financial Review

The forecast average iron ore price is to be downgraded to around $US60 in next week’s mid-year budget update,
<snip>
The iron ore price is now around $US68 but sources said MYEFO would contain forecasts based on an annual average price of around $US60.

It is believed this estimate was arrived at following consultation with the industry as well as the Treasury and is in keeping with Mr Hockey’s tendency to prefer conservative estimates and forecasts.

<snip>

“Iron ore prices have fallen by 35 per cent since May. This is $9 billion in our revenue projections just over the next couple of years,’’ he told ABC Radio National.

Wow. Will update my EBITDA figures for Arrium's iron ore mining based on $US60 and current exchange rates and cash extraction costs.

------

I shall assume that EBIT is proportional to the difference between the cost of supplying ore and the price obtained by selling that ore.

1/Supply costs are in Australian dollars.
2/Sold costs are in US dollars.

For comparative purposes in my adjustment ratio, I have converted AUD costs to USD at the rate of 0.8310.

EBIT for FY2014 was based on average iron ore earnings of $US123m per dry metric tonne.

I am proposing to use an average EBIT using average iron ore earnings of $US60m per dry metric tonne. This was the price used for Australian budget estimation purposes.

I have assumed that
1/ extraction costs reduced to between FY2014 and FY2015 to $A69.
2/ I also the AUD/USD exchange rate is 0.8301
3/ Steel prices are based on the Platts 62% Fe Index price in USD
4/ The same tonnage of ore is shipped out in FY2014 as FY2015 (12.5Mt)

EBIT(2015)= $481.3m x [($60m - ($69m x 0.8310)]/[($123m - ($69m x 0.8310)]

= $481.3m x 0.0405 = $19m (still -just- profitable!)

I assume that depreciation and amortization will not change substantially from FY2014 ($204.6m).

EBITDA(2015) = $19m + $205m = $224m

Still nothing to worry about, even with the government 'worst case' scenario.

SNOOPY

[Snoopy]

I think you will find that they will for the next capital raising,
Should not be too far away.!!!!!!!!!!!!!!!!!!!!

Interesting post on Hotcopper, pauljbo470, on 11-12-2014 regarding property assets of Arrirm up for sale

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This is whats for sale at the moment
http://www.realcommercial.com.au/pro...ield-501337111

it is pretty much the australian tube mill site there.

they do own the riverfront land behind it (see picture in the link) up to the cleared site closer to the ocean (old bhp steelworks site). I am sure the coalies would love to get their hands on it.

to give you an idea of what its worth the government just did a 98 year lease for the main part of the port for $1.75 B (700 hectares). But it obviously has existing port infrastructure

so definitely assets would outstrip market cap easily at this point.

--------

We are talking about Arrium land in Newcastle in the port precinct.

Land area is 39.25Ha. So scaling that government leasehold variation in proportion to area I get just under $A100m. Perhaps more to come if they could sell and lease back other land?

Obviously for comparative purposes, the government land is more developed in terms of port functionality. Not sure how selling land outright verses a 98 year lease would affect value.

SNOOPY

[Snoopy]

ME Long Teng

• Manufacturer and distributor of Chinese manufactured forged ball

'Long Teng' is the local Chinese partner of ME Elecmetal (Chilean based).

Drilling down into the website of ME Elecmetal. The Chinese grinding media plant is a small section of the overall company. The location of all manufacturing plants are as follows:

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CHILE

Elecmetal foundry (Santiago)
Talleres foundry (Rancagua)
Esco-Elecmetal foundry (Colina)
Talleres machine shop (Rancagua and Antofagasta)

UNITED STATES OF AMERICA

ME Global foundry in Duluth (Minnesota)
ME Global foundry in Tempe (Arizona)

CHINA

ME-Long Teng grinding balls factory (Changshu)
ME Elecmetal foundry, Changzhou

MEXICO

Fucasa foundry (licensee in Mexico)

-----

ME Elecmetal manufactures forged steel grinding balls from 7/8" to 6 ½" diameter at this joint-venture plant in Changshu, China.

"By offering premium quality grinding media, premium quality mill liners, integrated liner/ball design, and industry leading technical services, ME Elecmetal has accomplished proven results over the competition in helping customers achieve higher mill productivity and lower total cost of mill operation." (press release)

The annual reports are only available in Spanish, reflecting a company being domiciled in Chile. From p13 of that Annual Report:

"In 2012 Elecmetal continued its program of international expansion constituting the subsidiary ME Elecmetal (China) Co. Ltd. , in the city of Changzhou, China. This subsidiary began in 2013 (second half), the construction of a plant for forged grinding balls for an amount of US$45 million (approved in FY2012), which will be operational during the second half of 2014, to principally service the markets of Asia, Africa and Oceania."

This looks like new competition for Arrium. I notice they are not planning to take on Arrium in their core North and South American markets, at least in the short term. Moving on to page 17, it looks like the above paragraph may only relate to the latest expansion in what is a 3 stage project. Capacity is 400,000 Mtons of milling balls (total once construction is finished).

From p23 AR2013

"New subsidiary "ME Elecmetal (China) Co. , Ltd. is advancing in the construction of a foundry of special steels in the city of Changzhou, Jiangsu province, China, that will have a capacity of 30,000 tons of spare parts for grinding equipment, production that will be mainly devoted to the great mining of the Asia region, Africa and Oceania."

SNOOPY

[Corporate]

Let's take another look at the iron ore profitability

Current 62% fines price USD 68.70 wmt
Less discount for lower quality USD 12.37*
Realised price USD 56.33 wmt
Less Conversion to dmt USD 2.82**
Realised price USD 53.51 dmt
Realised price AUD 64.70 dmt***

Less total cash cost AUD 68.4* dmt

Equals negative AUD 3.7 dmt

At at 13mtpa run rate that is a cash loss of AUD 48.1m. And then the key point is this excludes any capitalised costs which according to the capital raising presentation - for mining only - are in the range of AUD $240-290m. This is hugely negative in terms of free cash flow.

Snoopy, looking back at earlier post there was some discussion on the leverage ratio. Have you reassessed the headroom based on these kind of numbers?

Sources:
* calc from the latest quarterly report
** 5% used, could be slightly higher
*** using 0.8270

[Corporate]

Edit, I have just noticed that I may have double counted the moister cost. it seems that ARI include this in the quoted total cost of production. So the margin may be closer to breakeven at a EBITDA level. But the point is this is nowhere near covering the capital costs of mining.