ICU - Investor Centre

[YOUNG_TRADER]

Re: FWL - Ferrowest Limited

YT...from your experience...do you think there is a possibility of the JORC resource being upgraded as part of the PFS?

I don't think so, PFS is more back of the envelope "do we proceed" type stuff,

Buy guys some excellent information both for and against FWL here,

Thanks for taking the time to do the research

 

[Pommiegranite]

Re: FWL - Ferrowest Limited

"FWL has a natural gas pipeline running straight their tenement; which most mines, I'm sure you will agree, do not have to begin with and are required to build at a massive expense should they require it."

Don't get too excited about that pipeline bro, we've already got three of the biggest alumina refineries in the world hanging off the end of it that (on a daily basis) are gas restricted as well as a couple of 130MW gas turbines that more often than not are running on diesel (you don't want to know what that costs) and theres more.

Infrastructure will be expensive.

Its amazing how many people want to shoot holes in projects without doing any research.

The gas pipeline capacity point was an interesting one. Really, I should have looked into this before investing.

However, I posed the question to Barry Wyatt (Yalgoo Project Director) and just got the following response.

Thank you for your comments on the Project and our web site.
We also think that this is a very exciting project.

In regard to the pipe line(s); I am advised by APT, the owner of the
Midwest Pipe Line , that there is currently sufficient capacity in the
line, to supply our estimated volume of gas.

If gas sales increased and the available capacity at the current
pressure was consumed by others then compression can be added to the
line to ensure our supply.

We are advised that there will be sufficient capacity available for our
needs on the DBNGP (Dampier to Bunbury Natural Gas Pipeline) when
expansion programs 5B and/or 5C are completed in 2009 & 2010.

I this answers your queries.

Regards

Barry Wyatt

I get the impression the Yalgoo project has all of the bases covered, (barring a Iron import ban by China).

So saying this, I really wonder whether the PFS really will be a yes or no report, or more of a foregone conclusion.

IMO it will be just a case of firming up what we know already

 

[Fool]

Re: FWL - Ferrowest Limited

More importantly....

Looking at the chart, we could have seen the bottom yesterday and the start of a new upwards trend.

Anyone with more charting experience want to confirm this ?

 

[Pommiegranite]

Re: FWL - Ferrowest Limited

Just thought I'd put this onto our Ferrowest thread, seeing the 'Infrastructure' word keeps on cropping up. Most of it is pretty general midwest stuff, so I've highlighted key points in red.

Infrastructure and Services



[SIZE=-1][SIZE=-1]The Mid West has well developed core infrastructure including transport, industrial land, communications, water and energy supplies, education and vocational training facilities and health services. [/SIZE]


[SIZE=-1]ROADS [/SIZE]

[SIZE=-1]The Mid West is well serviced with a network of major sealed roads connecting Geraldton to Perth, the North West and the hinterland. Major arterial roads include: the Brand Highway linking Perth to Geraldton; the North West Coastal Highway from Geraldton to the North West via Northampton, Carnarvon, Karratha and Port Hedland; the Midlands Road between Moora and Dongara; and the eastern connection from Geraldton to Leinster via Mullewa, Yalgoo, Mt Magnet, Sandstone and Agnew. [/SIZE]

[SIZE=-1]Work on the $88 million Southern Transport Corridor (Stage 1) was completed in late 2005 to provide a new direct transport link to the port of Geraldton for both road and rail from the Narngulu industrial estate. Stage 2 (scheduled for 2007/08) will further improve the road corridor to Narngulu and the Geraldton-Mount Magnet Road. [/SIZE]

[SIZE=-1]RAIL [/SIZE]

[SIZE=-1]The Australia Railroad Group operates the rail network in the Mid West and throughout the southern half of the state. The haulage task in the Mid West Region is exclusively made up of bulk products, such as coal, grain, mineral sands and iron ore. [/SIZE]

[SIZE=-1]The main depot at Narngulu, 13 kilometres from the port of Geraldton, is the junction of the two railway lines that come from the south. Another line branches off at Dongara to service the minerals sands deposits at Eneabba. [/SIZE]

[SIZE=-1]PORT [/SIZE]

[SIZE=-1]The Port of Geraldton is one of the most diverse regional ports in Western Australia with six land-backed berths. The $103 million Port Enhancement Project completed in 2003 has resulted in a deepening of the harbour to 11.5 metres at zero tide and up to 12.8 metres on a maximum tide of 1.3 metres. Other improvements include a new mobile shiploader to avoid cargo contamination and two new tugs. [/SIZE]

[SIZE=-1]In response to the increasing iron ore trade within the Region a $35 million upgrade to Berth 5 is in progress. This upgrade will establish Berth 5 as a dedicated iron ore berth capable of handling up to 10 million tonnes per annum (mtpa). This project is expected to be completed by late 2007. [/SIZE]

[SIZE=-1]Imports include petroleum products, phosphate, fertiliser and urea. Exports include wheat and other grains, mineral sands, talc, stockfeed, livestock, copper and zinc concentrates and iron ore. [/SIZE]


[SIZE=-1]AIR TRANSPORT [/SIZE]

[SIZE=-1]The Geraldton Airport is a Civil Aviation Authority licensed aerodrome, owned and operated by the Shire of Greenough. [/SIZE]

[SIZE=-1]Services provided by the airport include apron parking for four large commercial aircraft, a helicopter pad, space provisions for two private charter operators, and maintenance/servicing for light aircraft. In 1999 the main runway was upgraded to accommodate aircraft up to B737-800. A new $3.6 million passenger terminal was constructed in 2001. [/SIZE]

[SIZE=-1]Regional air services are provided by Skywest and Skippers. There are a number of private charter operators based in the Mid West Region. [/SIZE]

[SIZE=-1]INDUSTRIAL LAND [/SIZE]

[SIZE=-1]There is an ample supply of serviced light industrial land in various lot sizes in the Geraldton/Greenough area [/SIZE]

[SIZE=-1]The Narngulu Estate has a total area of 741 hectares. Of this, 541 hectares caters for general industry, with the remaining 200 hectares set aside for the development of noxious and hazardous industries. Currently, much of the estate has been sold to a diverse range of industries. At present about 70 hectares of land is free for use. [/SIZE]


[SIZE=-1]Oakajee, located 20 kilometers north of Geraldton, has been acquired by the State Government and zoned for industry and a port. Preliminary planning and environmental appraisal for the estate and port were completed ahead of zoning. The estate is not presently serviced and awaits a major project to underwrite the servicing costs [/SIZE]

[SIZE=-1]Opportunities exist for industrial development in other towns in the Mid West Region outside the City of Geraldton. [/SIZE]

[SIZE=-1]ENERGY[/SIZE]

[SIZE=-1]Electricity to the Mid West Region is provided by dual 132kV lines via the interconnected grid from Bunbury, Muja and Kwinana power stations. Geraldton, Chapman Valley, Golden Grove, Three Springs and Eneabba each have 132kV zone substations. Power is then distributed by 33kV line to Dongara, Kalbarri, Northampton, Mullewa, Narngulu, and Nabawa and throughout the Geraldton-Greenough area. [/SIZE]

[SIZE=-1]Six new power stations were constructed in the Region in 2003/04 at Meekatharra, Cue, Yalgoo, Wiluna, Mount Magnet and Sandstone. [/SIZE]

[SIZE=-1]Construction of the $210M Alinta wind farm at Walkaway 25k south east of Geraldton was completed in mid 2005. Consisting of 54 turbines producing 90 MW of power (enough for 60,000 homes) this is currently the largest wind farm in the state. [/SIZE]

[SIZE=-1]The Mid West Region is serviced by four natural gas pipelines: the Parmelia Pipeline (Dongara-Pinjarra); the Dampier-Bunbury Natural Gas Pipeline (DBNGP); the Goldfields Gas Pipeline (North West Shelf-Kalgoorlie); and the Mid West Pipeline (DBNGP to Windimurra). A spur line from the DBNGP services Geraldton and industry in the Narngulu industrial estate. [/SIZE]



[/SIZE]

 

[56gsa]

Re: FWL - Ferrowest Limited

Infrastructure

In the link i provided, you will see that Yalgoo has a Railway & gas pipeline running through it. Tallering Peak had neither.

Tallering Peak 2/10
Yalgoo 10/10

Capex

Tallering Peak proposed a $2.7 billion plant at Oakajee
Ferrowest will build Beneficiation & Iron Nugget Plants onsite with estimated costs of $330 million (including a 20% contingency)

Tallering Peak 1/10
Yalgoo 10/10

Cashflow

Tallering Peak was dependent on $400 million goverment subsidies. Very political and nowhere near enough

Yalgoo's project model suggests the possibility of shipping magnetite concentrate initially to generate cashflow until the pig iron production is off the ground.

Tallering Peak 0/10
Yalgoo 8/10

Production

Tallering Peak was looking at producing steel sheets. What the hell is that?

Yalgoo project is based on producing pig iron pellets using recent technologies rendering production extremely efficient/high grade

Tallering Peak ?/10
Yalgoo 10/10

Market

Tallering Peak was a project dating back 10 years.
Yalgoo project is current.

I'm assuming that I really don't need to go into the change of the demand/supply equation of steel. Suffice to say Pig Iron is hot.


Tallering Peak 3/10
Yalgoo 10/10

All in all, the only thing that Kingstream had in common with Ferrowest that they both had/have iron resources in WA.

ps. Nik Zuks although MD of Kingsteel, is only a shareholder of Ferrowest.

pommieG

some good points - and agree with your scoring in principal - altho perfect tens for FWL might be a bit overstating the case! by the way no trains to yalgoo - they pulled up the mullewa-cue line in the 1970s although theres still a very visible rail easement that FWL can use for its construction

i'd forgotten about the midwest pipeline to the PMA vanadium plant which i think is being rebuilt - a few years ago there were concerns that the DBNGP (which the midwest pipe runs off) was nearing capacity and they did work on approval for a 2nd pipeline easment but don't think they have tendered the new pipeline yet?

shipping magnetite?? @ 25% ?? is anyone shipping magnetite from australia - maybe savage river in Tasmania - but thought WA was all hematite / BIF

big next step is the metallurgy tests - a lot of magic in a lab doesn't translate to economic profitability. More impurities means mean processing, means greater costs. FWL's ore is higher in Sio2 (49%) and Al2O3 (5.5%) than GBGs (43% / 0.9%) - can they get this up to 65% Fe with low impurities? GBG came in at 69% Fe / 4.4% Sio2 + Al2O3

this is a marketable speks:

Chemical Composition (On Dry Basis)
Fe 65.00 % MIN
Feo 0.50 % MAX
Sio2 + Al2O3 5 % MAX
(Al2O3 0.6 % MAX)
S 0.02 % MAX
P 0.03 % MAX
TiO2 0.15 % MAX
AS 0.01 % MAX
Other metals 0.20 % MAX

the attractiveness of FWL is its mkt cap which is 1/30th that of GBGs (which has 10x the resource) so plenty of room to run - but remember Barry was saying for 10 years that Kingstream would be shipping steel slab - not the most independent person ....

 

[Pommiegranite]

Re: FWL - Ferrowest Limited

56gsa,

Thanks for you correcting me on the rail issue. However I'm sure the new highway upgrade will suffice.

The following email from the MD (Brett Manning) may answer some of your doubts.

I've just received a reply to an email which I sent only an hour ago! I was certainly very impressed by his speedy and detailed reply, which is always great to see from management:

I asked why Ferrowest have ruled against building the pellet plant on the Yangtze, China (a la Mt Gibson Iron) at 1/3 of the cost ($100 million) of which Ferrowest is prepared to spend. Keypoint in red

Dear XXXX,

It is true that you can build plant in China for about one third of
that in Australia but our objective is to add value at the mine site and
only ship 96%Fe merchant pig iron. This product has a high margin and will
see profits stay with the shareholders of Ferrowest.

If we moved the plant offshore then we would need to ship magnetite
concentrate (as Asia Iron intends to do). Magnetite concentrate is a
very low margin product that is very difficult to handle.

In fact the only way to move it any distance over land is by slurry pipeline as Asia Iron plan to do.

This is quite expensive infrastructure and between that and the low margin it is necessary to produce at least 6-7 million tonnes per year to make it economic. The large beneficiation plant, slurry pipeline and dewatering infrastructure at the port are all equally as expensive as our small value added operation.

So our goal is to focus on the value added merchant pig iron production
on a small scale and keep the capital cost down but the margin high.

This will ensure we can survive the bad times as well as the good times
we are experiencing now. Our Capex was estimated at $388.5m in the
Scoping Study in December 2006 and the EBITDA is around A$155 per tonne at a sale price of US$302/t. Merchant pig iron is currently selling
for around US$395.00 per tonne and so in the current market the margin
would be much higher.

With a magnetite ore body you can either go large scale low margin or
small scale high margin. Most projects in WA are going for the former
because it is quicker to market but we are going for the later because
we think there is a much better long term market for merchant pig iron.

As happens a lot these days I have no doubt that some parts of the
plant will be manufactured in China in any event, particularly given the
skill shortage in WA at the moment, and so we will gain some benefit from
that in any event.

This should not be construed as suggesting that Asia Iron or Grange etc
will not succeed. There are certainly some very promising looking
projects out there but our approach is a little different and we are
happy with our decision.

I hope this helps.

Yours sincerely,


Brett Manning
Managing Director

Ferrowest Limited
Unit 18, 28 Belmont Avenue, Belmont WA 6104
Ph: 9277 2600 Fx: 9277 2655 www.ferrowest.com.au

 

[alanding]

Re: FWL - Ferrowest Limited

restricted securities will be released from escrow on the date specified below:
• 8,700,000 shares on 24 July 2007

I only am being trading security for about two month. I do not quite understand of this.
Does this mean: FWL will release this number of shares to the market? If yes, can we know its price?

 

[Fool]

Re: FWL - Ferrowest Limited

I'd imagine they are released at market value.

But more importantly.... does this mean that they anticipate the PFS will be out before the 24th of July, in order to "get the best price for these shares" ??

 

[YOUNG_TRADER]

Re: FWL - Ferrowest Limited

The shares are just coming out of escrow, they're not new shares, these shares were the consideration/payment for the purchase of the project

PFS is due out before the end of the month, I doubt Comet will be looking to sell their shares though just yet, but you never know

 

[alanding]

Re: FWL - Ferrowest Limited

The shares are just coming out of escrow, they're not new shares, these shares were the consideration/payment for the purchase of the project

PFS is due out before the end of the month, I doubt Comet will be looking to sell their shares though just yet, but you never know

Thanks YT and fool.
I now understand it.

 

[UPKA]

Re: FWL - Ferrowest Limited

good sign boys! someone is accumulating at whatever share they can get their hands on!! orders r put thru at market price, about $70k worth, pushing up the SP! looks like someone is desperate to get in, possible insider?

PS its small volume, so doesnt really mean much, bt could be the company secretary buying . i think i've been looking at this stock for too long

 

[YOUNG_TRADER]

Re: FWL - Ferrowest Limited

Well whats interesting is AXO has a project nearby also called Yalgoo, probably 2kms to the east, they were drilling this project with results expected anytime, today they have gone into a trading halt, also FWL is up and the buy depth is building

Coincidence? Who knows

One things for sure 55c acted as support

 

[juw177]

Re: FWL - Ferrowest Limited

good sign boys! someone is accumulating at whatever share they can get their hands on!!

I dont see any heavy accumulation. Rather there is a shortage of sellers which will either see the SP jump on low volume or a SP cut when the sellers do come in.

 

[Pommiegranite]

Re: FWL - Ferrowest Limited

I dont see any heavy accumulation. Rather there is a shortage of sellers which will either see the SP jump on low volume or a SP cut when the sellers do come in.

The volume is pitiful. Nothing can be read into it. I'm sure there are ASFers who hold more the the current volume traded of $248K

The 115,000 bid at 66.5 confuses me. Earlier today, when the SP was around 64c was bidding at around 57c.

It just goes to show that if you really like a stock, it sometimes pays to pay up or the stock can get away from you.

 

[UPKA]

Re: FWL - Ferrowest Limited

Well whats interesting is AXO has a project nearby also called Yalgoo, probably 2kms to the east, they were drilling this project with results expected anytime, today they have gone into a trading halt, also FWL is up and the buy depth is building

Coincidence? Who knows

One thins for sure 55c acted as support

YT, AXO's pending annoucement is related to its Balla Balla project, not it's Yalgoo project, so i think its unrelated.

 

[charly100]

Re: FWL - Ferrowest Limited

anybody have any idea on what the industry average PE ratio is - i'm trying to crunch some numbers on this stock, i know its a bit premature but i'm just getting a bit of an idea.

 

[alanding]

Re: FWL - Ferrowest Limited

anybody have any idea on what the industry average PE ratio is - i'm trying to crunch some numbers on this stock, i know its a bit premature but i'm just getting a bit of an idea.

It belongs to resource. This sector avg. PE is 15.75 :

FWL is still in exploration. Its PE is zero

 

[charly100]

Re: FWL - Ferrowest Limited

Hi guys,

I’ve heard a lot of people talking about the SP is going to be diluted like hell once more shares are issued to raise money for the CAPEX. I’ve been trying to crunch a few rough numbers to guesstimate what the effect of the further capital raising will be on the SP. I’ve decided to calculate it as if all money were raised through issuing equity. I know this isn’t the only option to raise capital but the managers are going to choose the option that’s best for the current shareholders – and if I calculate how bad this strategy is then logically it couldn’t be any worse than that.

This gets a bit complicated and is based on a few assumptions:

(These numbers are very rough especially since PFS isn’t out yet. Because the numbers are so rough I’ve tried to use VERY conservative numbers in a “worst case” basis just to get idea of the worst scenario I could expect from the SP.)

If you think any of these numbers are either downright wrong or even just unreasonable then share me your ideas

CAPEX – 350M (taken from 330M on website and jacked up for some breathing space)
Annual Pig iron production - 500,000tpa (from website – it’s planed to eventually be scaled up to 2M tpa but ill keep it at 500000tpa to be conservative, plus that’ll probably involve additional capital expenditure which makes things more complicated)

Operating Surplus Per Tonne - $165.88 from company website (this could be eroded by the exchange rate being high but then again iron ore prices are currently higher than original estimate – besides it’s too hard to tell in the long term. I think this can be used as a rough guide since these managers don’t seem to be in the game of talking themselves up too much (remember how the JORC busted their initial target by 50%). Though PFS will give a much better idea of this figure!

This gives us an EBIT of approx - $82.5m

# of shares on issue before new equity issue - 54,000,000 + APPROX 30,000 000 options
if all options are exercised this will mean about 84M shares on issue.

Now to figure out the theoretical new value after capital raising I did the following – (note these techniques are just my own guesses, I’m not an expert at valuation so I’ve just used methods that seem to make sense to me)
I figured it was too difficult to try NPV analysis so I thought a rough guide could be found be using PE ratio’s based upon diluted EPS multiplied by the PE ratio. NOTE that I’ve used EBIT (which should be taxed) not net income originally because I forgot about tax! To get net income of 82.5 at 30% tax I think you would need an output of approx 720 thousand tpa which is in my view still a fairly reasonable and conservative figure seeing as how they may be planning to scale up to 2M tpa. (sorry I didn’t want to do all the analysis again once I realized this).

82.5 is the EBIT, S1 is the new diluted theoretical SP, S0 is the price of the shares offered under the capital raising. Note that the mkt. share price is irrelevant since we cant know what the company’s real value is, we can only have a good guess.
These two conditions must hold:
S0< mkt SP (in order to make the offer attractive to investors)
S0 < S1 (for the same reasons)

I wasn’t sure what PE ratio’s for the to use since I cant find any good comparisons, I’ve read some places (although I don’t know whether it’s a reliable source) that small companies in the industry have PE ratios of 7-15 and I’ve seen some producers in the industry with PE ratios of 15.

Anyway once I plot those graphs of S1 against S0 I come up with these plots (see below) using different PE ratios. I’ve got S0 on the x axis and S1 on the y axis. The black line is drawn because in theory nobody would buy new shares below this line because the diluted price would be lower than what they bought it at. Now its plausible that S0 could be anywhere along the x-axis but logically it makes sense that shareholders before capital raising would also have a good idea of S1, hence they would push the SP up since it makes them better off – the logic is the higher the market SP the higher price new equity can be issued at meaning less equity needs to be issued to raise the 350M. I.e. The pie is divided into fewer and bigger pieces. Thus the S0 should be towards the right side of the arc.

One thing I’ve noticed though that even though these numbers are what I thought to be conservative there is enormous upside even in some of the worst cases. The higher the PE ratio I use has an exponential effect on what the diluted SP is – this seems to mean that if this project gets off the ground and all the risk and uncertainty about the project going ahead is overcome, the upside is HUGE! But also i've notced that if my number go any lower than my most conservative estimate the analysis is so sensitive that it looks like no capital would be able to be raised at all (since S1 becomes less than S0 for all prices - violating the original condition) this happened when used the EBIT of 82.5 and taxed it at 30% and used a PE ratio of 7. However those numbers are in my view ultra conservative and not too much to be concerned about.

In the good scenarios it looks like some sort of fantasy but i don't know what else to make of it?

I’m not sure if my numbers are wrong or if it really is that good (as long as the project gets of the ground that is).

Any ideas?

Please feel free to tear this analysis to shreds in a constructive way – we’ll all learn more if you do.

 

[Rafa]

Re: FWL - Ferrowest Limited

It belongs to resource. This sector avg. PE is 15.75 :

FWL is still in exploration. Its PE is zero

That should read... PE is infinitiy...

You need earnings first before you can have a PE Ratio!

 

[charly100]

Re: FWL - Ferrowest Limited

Rafa,
the idea is that once it starts production the SP should reflect similar PE ratios of other companies that are already producing, thus if we can forecast earnings then compare this to the PE ratios of similar companies that are already in production we can get an idea of what the SP might be once they too get into the production phase - albeit a very rough idea. Similar to the way in which analysts compare the PE ratio of a stock to those of the industry to gauge whether the company is undervalued or overvalued.