MGX - Mount Gibson Iron

[Sean K]

1232 [Dow Jones] Merrill Lynch says Mount Gibson Iron (MGX.AU) is now a takeover target after recent share price weakness. News that some of MGX's customers are seeking to delay iron ore shipments saw the miner sold off hard last week. Macquarie says that even assuming a 30% drop in contract iron ore prices, MGX is trading below forecast June 2010 cash backing. Says MGX will be a takeover target as soon as the banking system rights itself. "At this level of prices, MGX offers an excellent entry into the iron ore industry for a major... or a steel company wanting to vertically integrate," ML says. Maintains Buy rating with A$3.00 target price; MGX trading up 7.0% at 76 Australian cents. (APW)

 

[jman2007]

1232 [Dow Jones] Merrill Lynch says Mount Gibson Iron (MGX.AU) is now a takeover target after recent share price weakness. News that some of MGX's customers are seeking to delay iron ore shipments saw the miner sold off hard last week. Macquarie says that even assuming a 30% drop in contract iron ore prices, MGX is trading below forecast June 2010 cash backing. Says MGX will be a takeover target as soon as the banking system rights itself. "At this level of prices, MGX offers an excellent entry into the iron ore industry for a major... or a steel company wanting to vertically integrate," ML says. Maintains Buy rating with A$3.00 target price; MGX trading up 7.0% at 76 Australian cents. (APW)

Yeah I have to agree....

Merrills would probably rate this play as one of the lower-risk pure iron ore plays that they cover. MGX recently copped a target price downgrade from Merrills from $5.00 to $3.50, but considering the way these guys were chopped up last week that might also want to consider opening up a line of Asian fastfood restaurants.

Pretty much got caught with my pants down here, basically this is back to what I paid for it last year. A lot of rebuuilding of investor confidence required here, preferably before any predatory behaviour thankyou very much. Although as a producer, and with proven infrastructure and this could potentially fall into someone's lap rather easily I have to say...

jman

 

[laurie]

Well it can do one of three things
1. Pay a dividend
2. Buy back
3. None of the above

cheers laurie

 

[adobee]

well i was expecting a bigger bounce from mgx.. not at this stage i guess... still very low levels.. I think they are going to need to give some assurity to the market before we see confidence restored.. meanwhile leaves the risk takers with a good buying opportunity.

 

[jman2007]

Well it can do one of three things
1. Pay a dividend
2. Buy back
3. None of the above

cheers laurie

Can't see a divy being paid at the moment. While it may send out a positve signal to the market, they would probably prefer to keep the cash in the kitty for the time being. And that's despite the $113.3M after tax profit for the year.

Bottom line from the AR looked pretty good to me. Cash on hand as of EOFY was $49M. Remember they will probably need to delve into the $200M debt drawdown facility to bring Extension Hill up to spec (which they do have Environmental approval for), of which $105M has already been used. Although one would think being DSO, this should be rather straightforward.

Rememebr these guys are still ramping up towards max production by 2010, the Koolan Island ore is quality, probably some of the best quality haematite currently coming out of Australia. The infrastructure across the board is in place (other than Extension Hill), and their performance has been strong to date. Remember there will presently be a lot of budding iron ore producers who will be a lot more concerned than MGX, and who have yet to ship one kilogram of ore to China.

jman

 

[YOUNG_TRADER]

Hey Jman, how ya been?

Just a note, I read in my email today Pato's have slashed their Price target from $4.20 to 75c

I think its mainly to do with the fact that some of MGX's customers said hey we've got enough Fe on the docks thanks

But I was also very very surprised to read that the idiots have hedged the AUD at 90 US cents, who on earth would hedge at that level, idiots

I have a feeling once an update is given to the mkt re the chinese customers, but more so the heavily hedged AUD we may even see further falls in the SP much like NXS's capitulation a few days ago

 

[nunthewiser]

added to very long term holding today at 55 and 56 , i do have a very low average way below this figure so this not a guide as to my idea of an perfect entry price .



go mgx for longterm biased holders

 

[speculator101]

Like you nunthewiser I have added to my position. $0.57.
I also have a very low average, however I am a little sad at the continued downward trend of MGX. Very much panic everywhere, which is both good/bad.
This is my first real market 'crash' and I am finding it both scary and interesting. Oh yes, I have 'lost' money on many other companies...
However, MGX is my core holding. Wise, or not, I have been there from the beginning and will stay until I think they are about to run out of ORE

Young Trader, I am like yourself, wondering how low the s/p can go. I am quite surprised that it is now under its future earnings for 10/11...
So, I am sad to say the only way MGX and the entire IRON ORE sector will get a major bounce is a massive drop in the US Dollar,... or... the start of foreign investment i.e big buying by China, India, funds etc of quality, resources stocks (whole companies)... When this happens, who knows, but I think that it will eventually happen in some form.
Anyway, long term holders of MGX will eventually see great returns, but of course that is little consolation right now, as your electronic money disappears into thin air.

good luck to all holders. Someone is buying up all the shares being sold.....
IMHO.

 

[jman2007]

Hey Jman, how ya been?

Just a note, I read in my email today Pato's have slashed their Price target from $4.20 to 75c

I think its mainly to do with the fact that some of MGX's customers said hey we've got enough Fe on the docks thanks

But I was also very very surprised to read that the idiots have hedged the AUD at 90 US cents, who on earth would hedge at that level, idiots

I have a feeling once an update is given to the mkt re the chinese customers, but more so the heavily hedged AUD we may even see further falls in the SP much like NXS's capitulation a few days ago

Howya doin' fellar?

I've had better days tbh. I took on board your comment re the hedging and went back to the AR. Can't believe I didn't pick up on it the first time I had a look. My interpretation is that they have US$345M hedged at $AUD 0.88. What I don't quite understand is whether this contract is in place until the end of the current FY?... and to get out of it MGX will have to pay $AUS about $560M?... leading to liability in the order of another AUS$100M or so?

That is a major concern if that is more or less correct, I don't know if there is any kind of corporate safety strategy they have employed to protect them against this type of volatility?

jman

 

[peteai]

Howya doin' fellar?

I've had better days tbh. I took on board your comment re the hedging and went back to the AR. Can't believe I didn't pick up on it the first time I had a look. My interpretation is that they have US$345M hedged at $AUD 0.88. What I don't quite understand is whether this contract is in place until the end of the current FY?... and to get out of it MGX will have to pay $AUS about $560M?... leading to liability in the order of another AUS$100M or so?

That is a major concern if that is more or less correct, I don't know if there is any kind of corporate safety strategy they have employed to protect them against this type of volatility?

jman

Do you mean hedging the hedging ("corporate safety strategy they have employed to protect them against this type of volatility")

I guess they may have been worried if the $A would go higher when it was in the 90s it would really hurt - also in one sense with the huge debts (budget , households etc etc in the $US should the $US be so high - we may be due for another currency realignment) can the US sustain such a high currency when it is already running huge deficits.

I know that money flows to the US in times of uncertainty but is it the safe currency that it used to be - is that the next bubble to burst

 

[Agent 86]

According to my calcs, at current rates of 0.6900, MGX FX hedging fark up is out of the money to the tune of -

$345m @ 0.8801 = AUD392m

less

$345m @ 0.6900 = AUD500m

gives

OTM by AUD108m

Who are their freaking advisors???

To think that some of the larger miners have a "No Hedge policy" - what were they thinking in not following their competitors. It is actually taking on risk by doing hedging programmes that is different from your competitor. There will be blood on the carpet at AGM time, I say.

 

[kray192]

hedging losses can be written off as capital loss, the $100m wont be reflected in profit terms only revenue. the effect on the profit will be less than to tax deductions possible from this terrible fiasco.

BUt you never know the AUD can go any direction in this period of uncertainty.

 

[Agent 86]

I am not a tax guru, but however you look at it, what investors want now is cash. So whether it is a capital loss or on revenue account it still burns shareholder cash if the AUD108m is realised.

I dont think that the AUD will be heading seriously north any time soon. 0.70's maybe in the short term, 0.80's that is another commodity cycle away.....

 

[jman2007]

Do you mean hedging the hedging ("corporate safety strategy they have employed to protect them against this type of volatility")

Haha, yeah I guess something along those lines,

I see they they had the 'Collar Instrument' option in place for 2007, to "Hedge sales receipts against cash flow volatility arising from fluctuating USD/AUD exchange rates by limiting explosure to exchange rates within a certain range of acceptable rates." (pg 79 of AR).

To my untrained financial eye, this looks to be some kind of 'hedging protection', for want of a better word, although the exact definition of all the terms is beyond me.

It doesn't appear that this instrument was in place for 2008 however.

What I'm trying to establish is whether this potential fiasco will have an impact on the Bottom Line, assuming the exchange rate remains more or less constant over the next 8 months or so. Or can this be fudged into another category such as non-current liabilities, or wtitten of as a tax loss as someone has mentioned? Not really my area, any comments from users such as YT etc welcome... maybe more of a tax issue?

Cheers
jman

 

[sean2008]

What happening to this share? Keeps on dropping, almost no bounce.
No divy as well. Is this company facing a big issue?

 

[Sharks37]

Looks like fear of recesssion and its effect on China's demand for IO is driving this. I bought some at $0.75 and some more at $0.46, thinking it must bounce at some point...and it hasn't. It looks like earnings will take a hit this year due to slower sales into China and also their forex hedging problem, however earnings forecasts for 2010 look pretty good. It may yet go lower, as the market is still gripped by uncertainty and fear, but IO will recover, and so will prices. I'd rather be in something like MGX right now with established production, rather than something like AGO which has yet to reach production stage because the economic climate and outlook might barr newer players like AGO from starting up, thereby giving established outfits a buffer period when things get better.

 

[bluboy]

Hi all,

I've been eyeing off MGX for a while now, and actually had a large order in @ $0.400 last night (Just missing out with the eventual $0.405 close).

Anyway, this morning I noticed they have been placed into trading halt for "Offtake arrangements". What is this? Have I missed out on the break I'd been waiting for... Or is this bad news and I've saved myself some money?

Cheers

--
BluBoy

 

[Sean K]

Anyway, this morning I noticed they have been placed into trading halt for "Offtake arrangements". What is this? Have I missed out on the break I'd been waiting for... Or is this bad news and I've saved myself some money?

Means a guaranteed sale of the product, but price will be the question.

In the past, this was good news.

 

[adobee]

I think this will be a positive announcement but in the current market anything can be negative... I am be kicked in the guts since picking this up around 70c.. please give us something ! If it goes down much further I may be better off taking over the company !

 

[Agent 86]

There was a rumour that the quality of MGX's product was not in spec with their offtake agreement.

Hence their customers were not honouring the Letters of Credit they entered into with MGX.

Does anyone have an angle on this one?