Ore and More

On one hand, London Mining does not have a port, or access to one last time I checked. On the other hand, the Indian press really likes talking up a good story. If you believe them, Tata is going to buy CSN’s iron ore division and London Mining (I am sure Gordon Toll will have something to say about that.), and only spend $8-10 billion before lunch. Mind you, the same press has been saying that New Millennium (NML) is going to be bought by another Indian group. I read lots of stories, but let’s just work out the numbers.

Two billion dollars is the reported offer for 600 million tonnes grading 41% of total resource. Assuming 100% resource to reserve conversion and 100% recovery, this is 352 million tonnes of shippable product. Assuming 60% total resource to reserve conversion and 90% recovery, you have 217 million tonnes of shippable product, or a price of roughly $10 per tonne of shippable resource in the ground. Now Sinosteel did pay that for direct ship ore in Australia, but that is very different from landlocked non-direct ship ore that will include a significant, probably one billion dollars plus, price tag to exploit properly. So you are looking at $3 billion in capital expenditure and purchase price for a 10 million tonnes per year operation that will run for 20 years.

For that kind of money, go buy a company like Grange Resources and keep the change. The fact is these are deliberate and planned leaks to the Indian press to get the Indian government to release domestic ore bodies for local consumption, and no one is doing the math to back up the statements. Buy on a rumor and sell on facts. It just is amazing to see the impact from this around the world.

See articles in Business Standard and Bloomberg.com. Download a pdf of London Mining’s preliminary resource update in Brazil.