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  1. #21
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    Quote Originally Posted by percy View Post
    I would be very careful with your NTA.If ARI can not make the assets work,things like a steel mill are of very little value.
    Could Ryman build a retirement village on the site for example?
    A good bit of lateral thinking there Percy. Retire all the workers, and put the retirees up in the shell of the of the old steel mill. You could even recycle the flaming iron ore cauldrons to cook porridge for the occupants! Do you think Ryman would go for it though? It would probably be a cheaper land to bank in Whyalla than what they are currently doing in Melbourne ;-)

    SNOOPY
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  2. #22
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    Quote Originally Posted by Snoopy View Post
    It has been a bad week for Arrium, the entity that has emerged from the former Onesteel. The history of Onesteel you can find here.

    http://www.sharetrader.co.nz/showthr...light=Onesteel
    Perhaps a little more recent history, the FY2014 divisional results from AR2014, might put things into perspective.

    Mining Steel Consumables
    Revenue $1,568.6m $2875.2m $1538.1m
    EBITDA $685.9m $50.8m $187.1m

    I am using EBITDA here because I think that is the best indicator of cashflow from the divisional information we have been given.

    The original 'Onesteel' was largely the 'Steel' bit of the above. 'Steel' also includes distribution and sale of steel within Australia. The steel factory was reconfigured so that it could use lower grade ore, thus freeing up the higher grade ore for export to Asia. With the Chinese boom, the mining and dispatch of higher grade ore operation was doubled in size just last year.

    The 'consumables' division was bought off Anglo American plc and is a global business selling grinding consumables to principally gold and copper miners. I don't have a problem with this diversity of direction. I would much rather be selling the shovels to miners than digging myself!

    It is clear though that in FY2014, by far the most profitible division was mining and shipping blended iron ore to Asia. And this division is where the trouble is brewing.

    SNOOPY
    Last edited by Snoopy; 03-10-2014 at 04:43 PM.
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  3. #23
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    Quote Originally Posted by Corporate View Post
    I'd be very careful with this one. If you assume zero earnings for the next 12 months from the mining business + $200m capex, this will have a serious drag on the rest of the company's performance.
    Is assuming zero earnings realistic though? How did you come by that figure? I imagine many companies could be made to look bad if you assume zero earnings going forwards. But am happy to go along with your assumption if you can support it.

    I have pulled the projected ARI CAPEX from the 'Retail Entitlement Offer' booklet, slide 27. ARI are actually planning to spend a lot more than $200m in FY2015!

    FY2015 Capital Expenditure -cash basis FY2015 Est
    Mining $200-$240m
    Mining Consumables $80-$85m
    Steel & Recycling $70-$75m
    Total CAPEX (excluding stripping asset) $350-$400m
    Mining stripping activity asset $40-50m
    Total $390-$450m

    All this would have been approved by the banking syndicate when the rights issue was sized up.

    I freely admit I do not know what a 'mining stripping activity asset' is. Can anyone fill me in?

    The breakdown of other mining expenditure consists of:

    1/ focussing on access to lower cost ores at KMA, Middle Back Ridge (MBR). Cut backs $135m.

    (Not quite sure what the above means. Cutting back the side of a hillside perhaps? Perhaps someone more conversant with mining terms can confirm.)

    2/ Ongoing exploration program at MBR of $25m. (I guess that could be postponed?)

    3/ Completion of Southern Iron (SI) haul road for $15m. (perhaps that could be stopped if the SI ore proves too expensive in the short term?)

    SNOOPY
    Last edited by Snoopy; 06-10-2014 at 04:01 PM.
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  4. #24
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    Default Iron Ore Blending Recipe

    Quote Originally Posted by Snoopy View Post
    The breakdown of other mining expenditure consists of:

    1/ focussing on access to lower cost ores at KMA, Middle Back Ridge (MBR). Cut backs $135m.

    (Not quite sure what the above means. Cutting back the side of a hillside perhaps? Perhaps someone more conversant with mining terms can confirm.)

    2/ Ongoing exploration program at MBR of $25m. (I guess that could be postponed?)

    3/ Completion of Southern Iron (SI) haul road for $15m. (perhap sthat could be stopped if the SI ore proves too expensive in the short term?)
    More information from a 27th November 2012 presentation

    -----

    Southern Iron - export program

    Blending benefits

    Blending of Peculiar Knob ore with MBR ores

    Lower grade ores from MBR (~53% Fe) with PK (~63% Fe)

    LGO from stockpiles and future mining at MBR

    Target blending grade ~59-60% Fe

    Blending ratio ~2:1

    Increased volume and cost of lower grade material more than offsets lost premium for
    >62% Peculiar Knob ores

    Lower loaded cost due to low cost of lower grade ores

    Indicative post ramp up loaded costs of SI blended ore ~$52-$57/wmt (excluding royalties and depreciation)

    -----

    SNOOPY
    Last edited by Snoopy; 03-10-2014 at 04:52 PM.
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  5. #25
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    Hi Snoopy. My zero earnings comment was what based on a sustained period of iron ore prices at current levels.

    I think they are quoting C1 cash costs of around $52. When you include royalties, admin, shipping, and product quality discount then the mining operating is probably breaking even at current prices.

  6. #26
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    Hi guys in case you havnt sighted it a good article in yest the australian re Smedleys team to blame for Arriums woes" "Capital raise cut int rates by$20 mill so earnings threshold falls from $370 mill to $300mill below this point and iron ore prices of $Us 71 tonne for remainder of year will see Arrium back in the hands of its bankers""Every 1cent fall in the $adds $17.5 mill earnings."Hudsons more bullish analysis shows roe falling to 0.3% from 8% last year and eps to 4c from 18.8 c" Sorry cant paste due to tech probs in Noosa Greetings From JT

  7. #27
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    Quote Originally Posted by Joshuatree View Post
    Hi guys in case you havnt sighted it a good article in yest the australian re Smedleys team to blame for Arriums woes" "Capital raise cut int rates by $20 mill so earnings threshold falls from $370 mill to $300mill.
    Thanks for the heads up on the article Joshuatree.

    Your above quote refers to ARI banking covenants, and I think the above $370m to $300m figure relates to forecast FY2015 EBITDA (EBITDA for FY2014 was $864m). Steel and Consumables EBITDA in FY2014 amounted to $240m. So if that can be maintained (steel may be up a little with consumables down a little) that only requires $60m from the iron ore export program to keep those bankers appeased. Zero earnings from iron ore would be a problem for the company in the next one to two years. But it wouldn't take much of a bounce in the iron ore price to appease the bankers. Last year Arrium managed nearly $700m in EBITDA from steel.

    below this point and iron ore prices of $Us 71 tonne for remainder of year will see Arrium back in the hands of its bankers
    I think the wording of the above quote is rather sensationalist.

    Arrium has never been in the hands of its bankers, so by definition it can't go back there. Besides the last thing a banker wants is to be running a mining company. What the article means IMO, is that Arrium will require another cash issue with iron ore prices of $US 71 tonne for remainder of year.

    ""Every 1cent fall in the $adds $17.5 mill earnings.
    The above is talking about the $A/$US exchange rate. The $A could easily depreciate by 4c over the next twelve months as the Australian economy falters and the US economy recovers.

    "Hudsons more bullish analysis shows roe falling to 0.3% from 8% last year and eps to 4c from 18.8 c"
    I would call Hudson's analysis less bearish than more bullish. I have never heard an analysis that forecasts a more than 75% decline in earnings described as 'bullish' before.

    "Hudson can actually see upside in the stock from here, thinking a lower dollar and a recovery in domestic demand will take the stock up to 62c."

    From 38c to 62c in a year? I think I can handle that. This might yet turn out to be the best investment on the whole of the ASK over the next twelve months.

    "The value destruction at Arrium stands at $580m if you compare yesterday’s close at 36c to the 56c ex-rights price, and more like $1.6bn if you go back to the 78c a share offered for the company three years ago."

    Bad news for shareholders viewed from back then back then, can still turn into good news for shareholders buying in today.

    I appreciate all the links to the negative publicity on the Arrium capital raising, and the negative opinions. Sometimes one can fall into a hole by overloooking what is obvious to others. But I do think the hole that I have bought into is something that Arrium can climb out of. So far I believe that my 'asset play' is very much on track.

    SNOOPY
    Last edited by Snoopy; 05-10-2014 at 02:57 PM.
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  8. #28
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    Quote Originally Posted by Corporate View Post
    When you include royalties, admin, shipping, and product quality discount then the mining operating is probably breaking even at current prices.
    'product quality discount'? Are you suggesting here that Arrium has got its blending mix wrong, so is having to accept a below market price for its end product?

    SNOOPY
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  9. #29
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    Quote Originally Posted by Snoopy View Post
    'product quality discount'? Are you suggesting here that Arrium has got its blending mix wrong, so is having to accept a below market price for its end product?

    SNOOPY
    Hi Snoopy, ARI produce 59% iron ore fines. The quoted price for iron ore is based on 62% fines. Therefore when sold the lower quality fines attracted a discount. For example FMG generally produce and sell 57% fines and receive 85% of the 62% fines price.

    Based on the current price this is what FMGs margin looks like

    Usd 80 for 62% fines
    Less Usd 12 discount
    Less Usd 49 all in cash costs ( incl royalties, admin, shipping etc.)
    Margin Usd 19

  10. #30
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    I've taken a look at recent ARI and the costs aren't as bad as I initially thought,

    they say all in cash costs are a$73 at current exchange rates is u$63 per tonne. This is at the bottom range of AGOs cost range and I believe ARIs product is slightly better.

    By my calculations FMG, ARI and AGO are making the following cash margins per tonne: USD $19, $10 & $1

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