Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nulla efficitur turpis a nisl lobortis luctus. In accumsan augue lectus, non
posuere nisl gravida in. Integer orci libero, interdum id interdum euismod, molestie id tellus. Duis non facilisis nulla.
ORENINC INDEX falls as trade war looms
ORENINC INDEX - Monday, April 9th 2018
North America’s leading junior mining finance data provider
ORENINC MINING DEAL CLUB
Access to...
Lots of coal-based projects have been killed or delayed this week. I am not sure that coal is the solution to all problems, but I think we need to be rational about what we are doing around it. We are killing coal mines in BC that are doing coking coal, and we are exporting petroleum coke vs. processing it into electricity in America or Canada where we will scrub it and clean it.
You want your iPad, iPod, car, house, light bulb, TV.... You want your food to come in a box and be affordable, you want your meat to be clean and fairly cheap. You want electricity to come out of the wall without any fuss. The key is that you want EVERYTHING to happen somewhere else.
It is a strong statement to say there is an oligopoly in the iron ore space, but the Big Three have owned the business since 2000 and will continue to do so for the foreseeable future. Is there enough iron ore in the world? Absolutely. Is there enough independent iron ore that can be profitably produced by new mines at $130 per tonne? Absolutely. The only way to keep the price over $130 per tonne without bringing in new suppliers is to have a couple of quarter-long market flush outs over the next 3-4 years.
The iron ore business is not constrained by operating costs. It is a capital-constrained business. Building large mines with the ability to move millions of tonnes of ore and waste cost at least $1 billion, which requires a stable iron ore market. Every time the price crashes, stability disappears and capital stops flowing to the smaller market players.
An asset can be valued in two ways: option value and net present value (NPV). A marginal project can have significant option value.
If you have a permitted mining project with a 22% or 30% IRR discount, reasonable capital costs, and a decent management team, the project will trade on a NPV basis. It will trade on the concept of what cash flows can be expected.
Too many CEOs are convinced that they are the Rock of Gibraltar. The sun rises because they wake up, their projects are so good that no one needs to market them, and anyone who doesn’t understand what they’re doing is an idiot at best and an active conspirator to steal the company at worst.
Many of these CEOs are excellent exploration geologists. Their confidence and ability result in extraordinary finds and world-class deposits. However, when it is time to manage the investor relations, the TSX, the books, and the interpersonal relationships that drive the mining world, they fail to place the right people around them who know how to handle these things.
