RE: speedkills, RE: Iron Ore upside potential..... 1 Million vs 5 Million tons….
Math is a strong suit of mine……and I will take a 5 million tonnes/annum iron ore operation over a 1 million tonnes/annum any day of the year, when all major components are equal!!
1st - if LIM is selling their 65% iron ore at say $140/tonne, then AXI or any other producer would be also be selling their 67% iron ore at the same price or higher…..in the same calendar year, in the same calendar month.
2nd - LIM has an extremely high OPEX of $50/tonne [operating expenditures] for a DSO operation, for reasons stated previously [sub-contract operation, as oppose to owner run; and a rare DSO “washing” facility due to the nature of their particular ore body]. But to continue, I am willing to go on the hook here and suggest that AXI will NOT have an OPEX above $50/tonne, for reasons stated previously [no rail costs, and once again, infrastructure costs has no bearing on OPEX]. As I previously stated, yes LIM has an in ground grade of 55 - 57% and therefore should have a OPEX of somewhere around $25 - $30/tonne…..but they don’t. AXI or I cannot be held accountable for that. It doesn’t change the century old formula…..Profit = Selling Price – Operating Costs!
Cash flow is NOT based on “in ground” grade! It is based [primarily] on the difference between their marketable selling price and their operating costs…..less royalties of course.
Therefore, if one producer is putting out 1 million tonnes per year with an OPEX of $50 and selling it for $140 per tonne…….then I will most definitely be more interested in the producer putting out 5 million tonnes per year with the same OPEX and selling price.
Unless of course, the 1 million tonne producer had a much lower Market Cap than the 5 million tonne producer.
LIM present day market cap = $345 million
AXI present day market cap = $37 million
Notes and Disclosures – for the sake of fairness to both parties:
- LIM targeted their OPEX at $50/tonne, but in fact came in at $65/tonne for their 2011 production. [and in all fairness to LIM, they will more than likely succeed in reducing this to $55/tonne, as per their MD&A]
- LIM is targeting sellable quantity this year of 2 million tones, but once again, around 65%
- LIM does in fact have some “Lump Ore” production [25%] which garners a premium
- And this should be obvious to all…..LIM owns 100% of their project; AXI will own 50% once the XXP joint venture is in place
- LIM has maintained an extremely low CAPEX throughout all their initial startup operations
- AXI has in place, an agreement to be “fully carried” to production
- As of this posting, AXI has not presented any OPEX figures for the proposed concentrate mining operation……these figures should be released in this quarter