MGX - Mount Gibson Iron

[Mofra]

I wonder what their next move is other than getting Koolan Island into production. A buyout possibly?

They do seem cashed up with debt at the lower end of the spectrum for a miner in the opening stages of production expansion.

Given the problems at the Geralton Port it makes sense to look elsewhere for growth, as organically growing the existing portfolio would be useless until the port issue is dealt with. Given the Aztec takeover and the earlier media reports of an expansion into coal (bulk commodity production seems to be a focus) further acquisition appears likely. Happy to hold

 

[michael_selway]

Full year accounts came out today. No dividends but they have enough funds or access to it to develop and mine the Tallering Peak, Koolan Island and Extension Hill iron deposits.


Financial Highlights
• Record full year net profit after tax of $47.8 million, up 103% on the previous year;
• Sales revenue of $165 million, up 119% on the previous year;
• Operating profit before tax $42.3 million, up 140% on previous year;
• Net assets total $454 million, up 316% on the previous year;
• Cash on hand at June 2007 - $61 million; and
• New Corporate Debt Facility signed on 28 August 2007 and conditions precedent to drawdown to be satisfied in early September


I wonder what their next move is other than getting Koolan Island into production. A buyout possibly?

Does MGX have a limited mine life?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 7.1 11.2 24.3 33.8
DPS 0.0 4.2 10.4 16.9


thx

MS

 

[Mofra]

Does MGX have a limited mine life?

Technically every mining co does, however MGX still has exploration options & development options within current land holdings, as well as stockpiles building due to the backlog at the Port of Geraldton. One of the pits at Tellering Peak was supended as well from memory, so this would serve to lengthen overall mine life.

Just a quick question, are the EPS foprecast figures you've provided inclusive of the Koonan Island (Aztec resources) production? Extension Hill forecast of 10MTpa is not due to be hit until 2010.

 

[michael_selway]

Technically every mining co does, however MGX still has exploration options & development options within current land holdings, as well as stockpiles building due to the backlog at the Port of Geraldton. One of the pits at Tellering Peak was supended as well from memory, so this would serve to lengthen overall mine life.

Just a quick question, are the EPS foprecast figures you've provided inclusive of the Koonan Island (Aztec resources) production? Extension Hill forecast of 10MTpa is not due to be hit until 2010.

Hi thanks, actually wouldnt be 100% sure, they are just the recent consensus forecast from COMSEC

thx

MS

 

[jman2007]

Wow, great recovery from 1.19 a few weeks ago, mostly on the strength of the balance sheet I would say. Anyone been following this? Would have possibly expected some resistance at 2.00 considering the new all-time high, but pushed through relatively easily. Would expect some profit taking and consolidation to occur soon though, a breather would do it some good.

 

[rustyheela]

i read on egoli last week, maquaries ( MRE ) had MGX as one of their preferrred exposure to iron. this may have gave the stock a giddyup lately.

 

[jman2007]

i read on egoli last week, maquaries ( MRE ) had MGX as one of their preferrred exposure to iron. this may have gave the stock a giddyup lately.

Yeah

no surprise with that MRE recommendation rusty, as predicted some profit-taking underway in last couple of days, dipping under 2.00 again, but imo will do it some good.

 

[michael_selway]

Yeah

no surprise with that MRE recommendation rusty, as predicted some profit-taking underway in last couple of days, dipping under 2.00 again, but imo will do it some good.

It looks like it has a short mine life

Tallering Peak Koolan Island Extension Hill
Annual production (Mt) 3 4 (target)3 (target)
Expected minimum mine life 6 8 6

thx

MS

 

[jman2007]

Agreed,

MGX is a relatively high-cost producer with limited life spans at some of their mines. The challenge for MGX management will be to procure other assests over the next 1-2 years, and try to capture greater economics of scale.

 

[tech/a]

Been trading this myself.
Some technical view if anyone interested.
While there is possibly more in this move I'm expecting to have to wait for a better buy opportunity.
Analysis below.
The Grey and Coloured Elipses will move across/up and down the page as trading matures.
They will eventually converge at a price and time point normally at a low of significance.

 

[chansw]

Agreed,

MGX is a relatively high-cost producer with limited life spans at some of their mines. The challenge for MGX management will be to procure other assests over the next 1-2 years, and try to capture greater economics of scale.

When you said MGX is a relatively high-cost producer, can you provide some figures for that? In the Investors presentation that MGX put on ASX last week, it has a chart to compare itself with a number of iron ore producers and indicates all MGX projects have amongst the lowest capital intensity of any of its peers.

Other than MRE, Smart Investors August issue also recommends MGX as one of the top 5 small company share. The mine life might be shorter but MGX has indicated possible M&A in the next 18 months with its strong cashflow. At the end of the day, the large reserve under the ground is good but it can only be turned into cash when the company can mine it and ship it to the customers. Anyway, just my two cents.

 

[michael_selway]

When you said MGX is a relatively high-cost producer, can you provide some figures for that? In the Investors presentation that MGX put on ASX last week, it has a chart to compare itself with a number of iron ore producers and indicates all MGX projects have amongst the lowest capital intensity of any of its peers.

Other than MRE, Smart Investors August issue also recommends MGX as one of the top 5 small company share. The mine life might be shorter but MGX has indicated possible M&A in the next 18 months with its strong cashflow. At the end of the day, the large reserve under the ground is good but it can only be turned into cash when the company can mine it and ship it to the customers. Anyway, just my two cents.

Hi what were the other top 5 companies they recommended?

thx

MS

Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 72.5 81.8 68.4 62.0
DPS 57.5 46.5 36.6 30.0

 

[chansw]

Hi what were the other top 5 companies they recommended?

thx

MS

Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 72.5 81.8 68.4 62.0
DPS 57.5 46.5 36.6 30.0

Should I tell you or not? Anyway, the top 5 small companies shares they recommended in August issue are :-

AGS
DYL
MGX
PNA
SBM

 

[Miner]

MGX has excellent potential and at a very advanced stage.
Price is also cheap considering its ore value and production situation.
I do not have any share on it. I had and sold it a premium (that time I thought to have made money !!!) but watching it with caution.
There are too many small to medium iron ore producers and with Chinese connection it will be only time when China will buy many of them and reduce the premium market.

Regards

Miner

 

[jman2007]

When you said MGX is a relatively high-cost producer, can you provide some figures for that? In the Investors presentation that MGX put on ASX last week, it has a chart to compare itself with a number of iron ore producers and indicates all MGX projects have amongst the lowest capital intensity of any of its peers.

Other than MRE, Smart Investors August issue also recommends MGX as one of the top 5 small company share. The mine life might be shorter but MGX has indicated possible M&A in the next 18 months with its strong cashflow. At the end of the day, the large reserve under the ground is good but it can only be turned into cash when the company can mine it and ship it to the customers. Anyway, just my two cents.

I sourced the information from the Merrill Lynch MGX Securties Analysis dated 27th April 2007.

(quote)..."Mt Gibson is a high cost iron ore producer on its current ore bodies, relative to the capital intensive operations and projects in the Pilbara and elsewhere." (end quote)

They provide the following figures:

Key Income Statement Data (Jun)

2005A 2006A 2007E 2008E 2009E (A$ Millions)
77 75 162 417 624 (Sales)
(50) (55) (114) (244) (335) (Operating Expenses)

Haven't had a chance to look at the MGX investor presentation you mentioned, but I would be interested to see who their "peers" are and the manner in which they are presenting their data. Don't get me wrong, I think MGX have done fantastically well, and it's know wonder they have risen to prominence over the past 6 months. The future bodes well.

Cheers
jman2007

 

[chansw]

I sourced the information from the Merrill Lynch MGX Securties Analysis dated 27th April 2007.

(quote)..."Mt Gibson is a high cost iron ore producer on its current ore bodies, relative to the capital intensive operations and projects in the Pilbara and elsewhere." (end quote)

They provide the following figures:

Key Income Statement Data (Jun)

2005A 2006A 2007E 2008E 2009E (A$ Millions)
77 75 162 417 624 (Sales)
(50) (55) (114) (244) (335) (Operating Expenses)

Haven't had a chance to look at the MGX investor presentation you mentioned, but I would be interested to see who their "peers" are and the manner in which they are presenting their data. Don't get me wrong, I think MGX have done fantastically well, and it's know wonder they have risen to prominence over the past 6 months. The future bodes well.

Cheers
jman2007

You can read the presentation at

http://www.mtgibsoniron.com.au/uploads/Mount%20Gibson%20Investor%20presentation%20September%202007.pdf

The following chart is from that presentation which indicates their peers that includes GBG, FMG, MIS, BHP, ... etc. According to the presentation, those figures were worked out from those companies reports. The forecast from Huntley Investment for MGX is

Year 2008 2009
EPS 11.2 cps 24.3cps
EPS Growth (1 yr) 57.08%pa 116.96%pa
EPS Growth (2 yr) 38.01%pa 84.61%pa
EPS Growth (3 yr) 40.02%pa 60.48%pa

MGX is in a more advanced stage compared to some of its peers in Midwest region and can take better advantage of the strong iron ore price outlook. According to that presentation, Top 50 shareholders currently represents 70% of shareholding. I am happy to continue to hold.

 

[greenfs]

The following commentary was supplied to a Tolhurst client (not me) earlier today...

We are approaching the latest round of Iron Ore price negotiations with our major Asian clients and we are expecting a large increase in Fe prices this time round. 25% is about market consensus.

If this is the case it will probably fire up the sector yet again.

I have to say I much prefer the likes of Mt Gibson (MGX) as they are a producer and they have just pulled back to around $2.25 which represents great value.

I am not (yet) a holder of this stock

 

[jman2007]

You can read the presentation at

http://www.mtgibsoniron.com.au/uploads/Mount%20Gibson%20Investor%20presentation%20September%202007.pdf

The following chart is from that presentation which indicates their peers that includes GBG, FMG, MIS, BHP, ... etc. According to the presentation, those figures were worked out from those companies reports. The forecast from Huntley Investment for MGX is

Year 2008 2009
EPS 11.2 cps 24.3cps
EPS Growth (1 yr) 57.08%pa 116.96%pa
EPS Growth (2 yr) 38.01%pa 84.61%pa
EPS Growth (3 yr) 40.02%pa 60.48%pa

MGX is in a more advanced stage compared to some of its peers in Midwest region and can take better advantage of the strong iron ore price outlook. According to that presentation, Top 50 shareholders currently represents 70% of shareholding. I am happy to continue to hold.

Thanks for the data chansw,

I have been a holder of this since I picked up a bunch for 79.5c, I find the apparent contrast between our sources of information an interesting one. I don't really feel it necessary to debate the subtleties of their cost structure however, as the sp is speaking volumes. The upcoming round of price negotiation for MGX should prove an interesting time for holders. I feel the increasing Chinese influence in the sector is a sign that Chinese interests may attempt to gain a foothold, and attempt to exert a disproportionate level of control over the iron ore price, that seems to be the way they like to do business.

I am merely expressing my own opinion, and this is not meant to be taken as financial advice by anyone. DYOR

Cheers
jman2007

 

[Miner]

Dear J Man
I fully agree with you.
The signs are there that our negotiation power will be only for a short time no matter how much ore we produce.
There are many reasons for me saying so.
The biggest Chinese investment corporation has free money of $1200 billion to invest world wide and Australia is a cheap area for them.
Our over dependance on Chinese steel makers to acquire shares of small to medium cap means gradually they are snaring our companies.
I have attended the last Global Iron Conference in Burswood WA and the presentation by various organisations including top of chienese investment organisation supports what I said. Their use of language and wording was different however.
One of the top Australian lawyers is just workign with chinese companies to get more and more acquisitions.
Recent float Chinese Yunan (not sure of the spelling) also supports that now the investment vehicle is fast working.
It is like fishing net if I can make an example
I also had MGX and I sold it for quick profit which was not bad.
I am watching important iron ore shares and they are consolidating by amalgamation. In next three years there would be probably five large players or groups in iron ore group and two of them will be Chinese owned or controlled.
It is pure economics and no speculation here.

Regards

Miner

 

[jman2007]

Dear J Man
I fully agree with you.
The signs are there that our negotiation power will be only for a short time no matter how much ore we produce.
There are many reasons for me saying so.
The biggest Chinese investment corporation has free money of $1200 billion to invest world wide and Australia is a cheap area for them.
Our over dependance on Chinese steel makers to acquire shares of small to medium cap means gradually they are snaring our companies.
I have attended the last Global Iron Conference in Burswood WA and the presentation by various organisations including top of chienese investment organisation supports what I said. Their use of language and wording was different however.
One of the top Australian lawyers is just workign with chinese companies to get more and more acquisitions.
Recent float Chinese Yunan (not sure of the spelling) also supports that now the investment vehicle is fast working.
It is like fishing net if I can make an example
I also had MGX and I sold it for quick profit which was not bad.
I am watching important iron ore shares and they are consolidating by amalgamation. In next three years there would be probably five large players or groups in iron ore group and two of them will be Chinese owned or controlled.
It is pure economics and no speculation here.

Regards

Miner

G'day Miner,

There are some interesting points raised in the "iron ore" thread created by YOUNG_TRADER detailing the current status of Australian negotiations, and the possible leveraging options available to Aust companies to force a better deal, here is a sample;

"If China is so desperate for iron ore that it would pay US$171/t at spot for low quality ore, why are BHP and Rio accepting only US$78/t? To adjust the price upwards towards something more equivalent would be to add literally billions to the bottom line of both companies. The answer lies in an arrangement between Australia and China which has been in place for 25 years. For starters, both supplier and customer prefer to negotiate annual fixed-price contracts than play games in the spot market. This provides price security to both parties. But most importantly, under the arrangement Australia has always borne the cost of freight"...

I assume this situation is still in place, ie we pay the freight costs, thus biting into the profits, even though our ore is of a superior quality to that of other Chinese customers. eg India

Perhaps the iron ore thread may be a more appropriate forum to discuss these factors, since this is not an exclusively MGX issue.

Cheers!
jman2007