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The hedge started October and I see no mention of previous hedges in the June Quarter report. Therefore the $163 sales price was an average of the market over the quarter. Makes sense as we know prices peaked at $230.
So even with a $163 selling price and despite the below extract
***Sea freight costs continued to increase due to a buoyant trading environment for bulk
commodities including base metal concentrates, and port congestion in China that combined
to limit the mobility of the Panamax fleet in the Pacific."***
Freight costs averaged $34.
There is also a timing lag between the Freight costs and ore prices so if we look at the June Quarter results for Fenix then you will see:
Average selling price $200
Average Freight cost $30
Therefore, still happy with my estimate of $9 Freight on a $100 ore price. If anything it's conservative as I expect actual results will more than likely mirror Fenix September Quarter of
Average selling price $163
Average Freight costs $34
This gives a contribution to operating costs of $129. I am forecasting $91 ($100-$9). Plenty of room for error.
Even at current rates of :
Selling price $120
Freight $12.50
That's a contribution of $107.50
Still above my forecast.
CFR price - fat fingered morning for typos
correction CRR price of ~ $160/t not the typo of FCR cost
Fenix realised an average FCR cost of just over $160/t during the period their shipping was $34.4t, but they had hedged to lock in higher higher sales prices, so the open mkt price may have been a little lower
Thanks HH, don't always have time to check. The latest quarter was $34/t. So would this be when iron ore was up at $230?
If so then it proves my point further. I will see if I can obtain an average selling price per tonne of ore from Fenix over the same quarter.
@DRB83 - Fenix's costs are easy to obtain from their own financial reports where for the latest quarter they state overseas shipping costs of $34.4/t, up nearly $5/t from the previous quarter.
HH, agree that it is very difficult to forecast future profits given the volatility and number of variables in play.
However, my main point was that Trumble was using a figure of $20 Vs a sales price of $100. This was a guesstimate based on a $34 for Fenix which I am not sure where that came from. I found that the current price was $12.50 for Freight when Iron ore prices are at $120.
If iron ore demand drops and with it the price to say $100 then the freight demand will drop and with it the price to say $9 (not $20). If the Freight was to rise to say $40 then it is likely that the ore price will also rise to say $200+.
Therefore in a large part the Freight costs for $100 ore I would expect to be $9. Any increase in freight will be more than hedged against by the rise in ore.
I appreciate there are a lot of variables in this as you say but given the information we have I am opting to include in my forecast $9/t for Freight against the $100 ore price and the $60/t operating costs. Gives me $31/t profit on 1.25mt pa so I'm forecasting $40m approx profit in year 2, $20m in year 1. Based on just a 10mt JORC at Han****.
For every 10mt additional we find at Han**** I would expect we would increase output and not just the LOM. Therefore I will be forecasting $80m pa profit on a 20mt JORC.
I suspect if the ore price is low in 2-3 years say $100 still then Alien may choose to extend the LOM instead of increase production but if the ore is north of $150 then I would expect production to be fully maximised. It is a nice feeling to know we will have some control over this.
I am hopeful and expecting iron demand to increase over the next 3 years.
@DRB83 - as has been said there are still too many unknowns to make reliable predictions about where our future profits may end up. Iron ore prices having spiked to extremes have fallen back dramatically and future forecasts are very conflicted with little consensus between experts. We must also recognize that energy costs are rising, plus demand problems are affecting overseas shipping prices which are currently at extremes where some are predicting the situation may get worse, others are suggesting things may settle back to past norms. Consequently current prices and costs may tell us little about potential profits in a year or two.... we've only to look at the roller-coaster ride existing iron ore producers profit margins have gone through over the last 24 months.
From my point of view the key point is that we are far from having a deal with any particular customer so don't know what contract terms we will agree, where our ore would need shipping to or in what quantities, all of which could have a huge impact upon our total costs.
We should note that shipping costs for huge capesize freight ships are much cheaper pro-rata than smaller vessels like panamaxes. Our CEO has suggested an approx production rate of 1.2m tons per year or about 100k tons per month. Depending upon how frequently a customer(s) may want deliveries, the location(s) to be shipped to and how port storage fees work out we may be looking at one small but expensive shipload dispatched every two or three weeks, or one larger more economic shipload every couple of months. At current prices shipped to China that could add to Our FOB costs anywhere from more than $40/t to less than $20/t, but as I say current prices may be a poor indicator of where things may be in a year or two and it may yet be that we end up shipping somewhere other than China.
As always I encourage folk to consider a range of possibilities, plan for the worst and hope for the best.
The Capesize freight rate goes up and down based on iron ore demand from China, therefore any increase in the freight costs will be more than offset with the increase in the ore selling price. The calculations from Bill were based on $100 and the expected price of iron ore in 2022 is forecast to be no less than $115 by the bears so this will more than offset the Freight costs if we do indeed have to bear that cost (depends on what we negotiate with the customer). Let's also not forget that the cost were <$60 so that could be $58, $56. More potential upside there. Let's see what the actual NPV says when it comes out but I'm comfortable given the recent development on Freight costs.
Here is a price:
From Port Hedland to China. &12.50 per tonne. Not sure if that includes Insurance but it's a start and better than $20.
https://www.metalbulletin.com/Article/2918609/FREIGHT-REPORT-Iron-ore-freight-rates-to-China-trend-higher.html
Having done a little more research I do now see Trumble's point. It appears that CFR means that the seller is responsible for not only loading the ship but paying for and arranging the travel to the receiving port. The seller however is not responsible for insuring the load in transit. That is the buyers responsibility. Having said this, $34 per tonne seems extortionate. Imagine if you have a 500kt load, that's a $17m delivery charge. I wouldn't mind owning the ship. Where did the $34 price come from?
HH. Agree. We all have our ways and methods.
I like to look at these companies in simplistic terms. 5% in the ground isnt perfect, but given acquisition history, it's what people have paid to buy resources before. All of the other stuff like market sentiment / possible deals / CEO performance are all clearly intangible and can't really be factored or measured.
For what it's worth I think 1.5 is about right, clearly technicals show we need to push up a bit more on this move to for the previous resistance around 1.2.
It's clear that Hanc0ck is a breakthrough moment for UFO. D2 was clearly the disappointment of 2021. But Bill has pulled it back.
@normbeef - very much with you on that - what constitutes a "fair" price is very much about subjective judgement of what potential future profits might be worth to us today.
Myself I'd like to see us breach and hold above the 1.2 ~ 1.3p that has been a threshold all year as that would be a vote of confidence that sentiment is returning, but I think too much above that would likely be bringing forward too much anticipation of future earnings.
Its far too early in the process to try and price this up. Bickering about these costs is a moot point. We don't even have a mining license yet let alone an offtake agreement. Personally i prefer to just take a nominal figure for in the ground resources my personal choice has always been 5% thus for Hanc0ck to date it's worth around 60m the Mcap.
I fully expect this to increase as we progress with drilling and licensing. I would put the current SP close to fair value. Obviously there's room to over / undershoot.
Fair enough comments there h.h.
The expertise and experience now on board with the company ,should see the best way forward. There are plenty of buyers and not so many sellers and this situation is increasing in favour of the miners.
fantastic calculations and visions, I could even say that I already smell the iron ore danazing from my garage, so much that worries me, and therefore the most mundane things like low volume. can you express your delight on the Twitter?
DRB83, thanks for your comments.
To reiterate: the point is that both the price and the cost have to be the same incoterms, FOB or CFR.
All the main reference prices are CFR. Here's one example:
https://markets.ft.com/data/commodities/tearsheet/summary?c=Iron+ore
Iron Ore 62% Fe, CFR China (TSI) Swa: US$121.94
If people wish to quote these prices, they have to also include Freight on the cost side. I have said US$20, but remember that this cost Fenix $34 in the last quarter.
To take the price above, profit would be
CFR price US$121.94
Less FOB cost US$60.00
Less Freight cost US$20.00
Profit US$41.94
The RNS simply stated the FOB cost, while presenting no accompanying sale price. The problem is that people have lifted the FOB price from the RNS and started comparing to CFR sale prices.
No doubt I'll get shot down by the usual suspects for not supporting the prevailing narrative but, one of the primary reasons for quoting FOB costs is a recognition that shipping costs will vary for different customers in different locations. Until a contract is actually agreed with a particular customer nobody can know what it will cost to ship the last part of the journey to that customer.
Whether we agree an FOB, CFR or IFR contract will impact legally upon exactly how shipping and other costs are covered by different invoicing, but both parties will no doubt factor these costs into negotiations about what we are paid in relation to the going commodity price at the time.... we won't be paid a CFR price if we don't agree a CFR contract.
Regardless, estimated FOB costs below $60/t leave a useful working margin to cover fluctuations and unknowns in future prices and costs and still leave us a profit that should hopefully make a worthwhile difference to a small company like UFO.
$60 no more
Great work guys
Mr trumble happy now
All the best proper ufo investors
What a ride going to be massive
This also explains the CFR terms which also supports Bills $60 per tonne all in cost. Not $80. Hopefully this settles the debate.
https://www.investopedia.com/terms/c/cfr.asp
Understanding Cost and Freight (CFR)
Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, the conditions under which the risk of loss shifts from the seller to the buyer, and specifying the party responsible for the costs of freight and insurance.
If a buyer and a seller agree to include cost and freight in their transaction, the seller must arrange and pay for transporting the cargo to a specified port. The seller must deliver the goods, clear them for export, and load them onto the transport ship. The risk of loss or damage transfers to the buyer once the seller loads the items onto the vessel but before the main transportation occurs. This provision means the seller is not responsible for securing insurance for the cargo for loss or damage during transportation.
Ok, I think this extract actually settles the matter.
Under the terms of FOB (short for “Free on Board”), the seller clears the goods for export and ensures they are delivered to and loaded onto the vessel for transport at the named port of departure.
The buyer takes over risk and costs, including import clearance and duties, as soon as the goods are loaded onto the transport vessel at the port of departure.
https://www.aitworldwide.com/incoterms-fob
I read/heard it as $60 all in for getting to port and port fees and was let to believe whoever the buyer is would park their ship/organise it and the cost from the port. We only supply product to the port .
That is a significant claim from Trumble. $60 to $80 just cost us $200m. Bill did say the $60 covered everything and mentioned nothing about an extra $20 shipping it to China.
I'm all for fellow investors challenging the numbers but if you are saying Bill is wrong or misleading us then you must show proof to support your claim. Your opinion will just be dismissed as 'just opiniin' if not substantiated.
In the meantime, another way to solve the unclarity is to directly ask Alien the question. Is someone able to do that and feed back to the BB please?
I think Trumble took a tumble and fell on his head one to many times
Let him carry on its going up lol