Movement of Scrap and HCMI prices you can track online from many sources…
Per ton cost would vary widely across ores and across mines … Sorry, I have no idea… Also, within the same mine, ore blends available for crushing varies from time to time.
I think the effective life of HCMI would be much higher than a Forged Grinding ball and quality of grinding (particle size distribution and final recoveries) would be better as on Rockwell Scale the difference between Core and Surface of a forged Ball would be much higher compared to Hi Chrome balls.
Also, possibly (not sure) metallurgical response to subsequent treatments of the grounded ore would be better if uniform microstructure is obtained through uniform particle size.
So, the variables are many… Mine / Ore / Reagent specific and can’t be surmised easily at least with my level of preliminary knowledge.
Yes, Mine Utilisation is beyond control of AIA… But Human Civilization is build on these commodities… I don’t know if Mining can go for a very very prolonged “absence of demand” … Also, I have no data point to say MInes have substantially reduced their throughput due to downturn in commodity prices. If they have done that then the downturn in prices itself would have been arrested.
even i would like to know on a related or unrelated note , why mining stocks are under pressure? why companies like Moil etc bear the brunt of a commodities cycle even though their balance sheets show no such massive effect.
Aveek, true, the world needs iron ore but what has happened over the past few years is what can only be termed as a super bubble in iron ore, prices rose from 30$ in 2005 to peak at the 180$ range by 2011 ( virtually single handedly driven by China) the cost of production at major miners such as BHP Biliton is only around 25-30 $ so they all enjoyed wind fall profits . Now prices have crashed to the 45-50$ range but are still way above the 10-15 $ average prices during the last 25 years.
Major mines are still producing as prices are still above cost of production ( similar to gold), however when you have these kinds of movements and an unpredictable China one simply does not know how all this will end. Too many " unknown unknowns" as traders like to say.
What you are saying would hold true if you are investing into a mining co. Their profits would get materially hit. But if they have to continue mining - which they should till its not a loss making proposition - the balls manufactured by AIA etc would continue to be needed. Yes, there can be some pressure on volumes and margins of AIA but if we analyze the numbers of AIA then we will appreciate that the margins have only risen in this environment and so have volumes. Going forward a lot of mines would open up in India - I think that can be a positive for AIA.
AIA has indeed done a terrific job scaling up with excellent return ratios.
I am merely highlighting a potential downside of mines dropping their utilisation levels which would in turn impact consumption of consumables although AIA claims it would not have much impact as their technology is cost saving.
Thanks for the reply. One more important point is that the deteriorating ore heads will drive the consumption of Grinding Media. As per Company, Chrome Content is 32%. You are right when you said that the ore are always in demand. I have not seen any drop in ore milled from year to year in so many years on a global scale. I am very bullish on this stock and watch keenly their expansion plans to continue to hold LT investment. In India, increased mining of Coal will increase the demand, in ME Cement.
It is important to keep in mind the economics of a mine when thinking about AIA. The capital cost of prospecting, permitting and developing a mine runs into millions of dollars. In addition the fixed cost to run a mine is high. the variable and marginal cost to operate the mine is much smaller. So unless the iron ore prices drop below the marginal cost of running the mine, the volumes are not reduced and even then either you completely shut down the mine or keep it running as the restart costs are quite big.
Rohit- current ore spot prices are lower than break-even at EBITDA level for all miners except the largest ones such as BHP. Commodity producers look at total cash costs of operating any mine ( gold, silver, copper or iron ore) not just variable. See below article from Mining.com.
Atlas Iron shuts down production on low iron ore price
Andrew Topf | April 12, 2015
Atlas Iron is shutting down its operations due to low iron ore prices, the company announced on Friday. As the fourth largest iron ore producer in Australia, the closure is the biggest casualty so far of depressed iron ore prices, which are trading at their lowest levels in a decade.
“Atlas Iron (ASX: AGO) advises that due to recent significant falls in the iron ore price, it will progressively suspend its mining operations over the month of April, with exports to cease shortly thereafter,” the company said in a statement.
“Despite an extensive cost-cutting program, to which staff and contractors have made significant contributions, the global supply-demand imbalance for iron ore has driven prices down to the point where it is no longer viable for Atlas to continue production. Atlas has continued to reduce costs significantly and its break-even price on a benchmark 62Fe basis is currently below USD$60/t at an EBITDA level. However, despite these substantial reductions, Atlas’ breakeven price remains well above the current spot price. In light of this, Atlas will cease mining and crushing at its Mt Webber project next week. Mining and crushing at the Abydos project is scheduled to cease within 14 days and operations at the Wodgina mine are expected to be completed in late April. All Atlas’ projects will be put on care and maintenance, pending future iron ore market conditions.”
agree with your point. There is an additional point beyond EBDITA/ cash profit. Mines are not shut down as soon as the price drops below cash breakeven as the cost to re-start a mine after shutdown is high. So a lot of times, management hope and pray (in addition to forecasting the future ore prices) before they shut down the mine
But if prices stay low enough for long - which seems to be the case, these mines will start shutting down. more expensive ones first and then the others.
However even if these mines shut, there is enough ore mining going on that the opportunity space is still large enough for AIA
AIA announced Q1 results today http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/637BED8C_2BDF_4815_A86F_731AA0CA04CA_133905.pdf Standalone - Sales was flat Y on Y (for such businessnesses, futile to compare Q on Q) but profit numbers rocked viz 63% jump (EPS comparison y on y - 9.06 vs 5.59 Consolidated - About 9% growth in Sales and 6% growth in net profit - Y on Y…EPS 10.9 vs 10.09
Stock has been oscillating between 950 and 1030 for months together and has been a gross under-performer. Hopefully, it will change in coming weeks and I am hoping that there won’t be an unfair comparison with Q4’15.
Would like to know more about the breakup of various streams
PS - view are biased since I am invested. pl do your diligence
Key takeaways of the call by Capital Mkt
Q1FY16 sales volume stood at 45000 tonnes and of which mining volume was about 23500 tonnes.No mines are closing down despite commodity down-cycle however there are delay in conversions from enquiry to contracts as well as deferrals of orders. So flattish kind of scenario exists in the market.
Volume to bounce back in second half. The clients are destocking mode and the company expects the destocking mode to come to an end by end of current fiscal. Destocking is across the board and not confined to an ore or other. Expect volumes in the range of 200000-210000 tonnes for FY16.Sustainable long term EBITDA margin is 20-22%. Selling price has come down a bit due to the function of passing on lower material cost, product mix and entry level strategy.As entry level strategy the company has to provide a price comfort for the customers so as he inclined to move to superior products. If the initial price differential is huge he will hesitant given current market conditions. So the company in taking market share has to be adjustable in pricing.Current capacity stands at 260000 tonnes. And no pull back of capex given challenging market conditions. The Phase I capacity expansion by 80000 tonnes is already commenced with scheduled commissioning by Q2FY16 and the second phase of expansion to the tune of 100000 tonnes will get completed and plant will be commissioned by Q3/Q4 of FY17. and the phase I of green field expansion of 80000 tonnes capacity will get commissioned in Q2FY16. Capex for FY16 will be 150-200 crore.
Value proportion bring on the table by the company is there. The conversion is not at the expected speed.
Mining companies are not incurring new capex because of the fall in commodity demand and same applies to other segments like cement, aggrgators,etc where AIA operates. In India, I am betting on Coal and cement capex/demand but when it will turn up we dont know.
AIA has twin advantages : Increase in demand/cycle upturn and conversion of forged media to Chrome ( this is more apparent now as it brings down cost of miners as so many miners are trying to remain afloat. The first sign of worry comes when mines start closing down.
With a cash of Rs 900 cr and stable profits AIA can be able weather the storm. Nothing to worry and add more when it comes to attractive levels and stay put for the next 2-3 years as it very difficult to predict upturn in cyclicals.
