Roy Hill says it’s cheap enough

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From Gina’s iron ore newsletter:

Roy Hill Holdings chief executive Barry Fitzgerald says…the project’s break-even cost per tonne was “confidential information” but said the company was “comfortable with where it sat in the lower quartile of the cost curve”.

“I am not worried – I do not stay awake at night thinking about the price of iron ore…We are a long-term project and we are not going to be in production for 12 months or at full capacity for three years so it is important to keep perspective.

“My personal view is, and I think I share the view of the experts, ultimately the low iron ore price will be around where the experts think and with where we are on the cost curve I think we will survive long term.”

So long as it’s below FMG it’ll be all right. UBS guesstimates it at an all-in cost of $58 per tonne. That doesn’t make much sense in terms of commodity theory, which says the cheapest and highest return assets should be developed first, but Gina is a strange bird and maybe she held this one back for some reason.

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The question we should probably be asking is whether or not it is a good investment.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.