Today the AFR continues its quaint mini-series: the hopes and dreams of a dying iron ore miner. Starring in today’s episode is Mount Gibson CEO Jim Beyer:
Mount Gibson is less leveraged than small peers and had $520 million in cash as of June 30. It has been touted as a potential acquirer of rival Atlas Iron.
…“At $83 a tonne and 91c for foreign exchange that will be challenging the cash balance,” he said.
While its Extension Hill mine remains profitable, Mount Gibson is spending up big to upgrade its Koolan Island operation off the northern Kimberley coast of Western Australia over the next two years. It expects significant savings to flow once the low-cost producing project is complete and to “print money” thereafter.
…“The uncertainty for me and I suspect for most people is what domestic production in China – where it’s marginal cost is,” Mr Beyer said.
…“Chinese demand is pretty consistent and will remain consistent,” he said.
“Traditionally the last quarter of the year is a strong one,” Mr Beyer said. “I’d like to think it will return to well above $100 a tonne.”
Yes, traditionally, but with Chinese port stocks where they are, the chances of getting back to $100 from here are very slim.
According to UBS, MGX has a break even at around $80 so it’s not the worst junior but it’s well above FMG at $74. If the new mine can’t get MGX below Fortescue – which is the first large marginal producer on the cost curve and will determine the price floor – then it is caput.
