AYSI price momentum seems to be swinging to the upside. There have been a number of positive industry factors that have likely led to the increase, as well as the stock simply being undervalued. As mentioned before, it appears the selloff following the delisting news was a bit of an overreaction. I can't say I've seem a meaningful change in the stocks liquidity.
Fortescue, Alloys largest customer has announced the approval of their expansion plans. Needless to say, this should definitely help support Alloy's expansion going forward.
Fortescue Approves $8.4 Billion Iron Ore Expansion (Update2)
Nov. 19 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-biggest producer of iron ore, approved an $8.4 billion expansion in the Pilbara region to almost triple output as demand from steelmakers gains.
The company may need to raise $4 billion in debt to fund the expansion, Chief Financial Officer Stephen Pearce said on a conference call. The remainder will be funded through reserves and cash flow, Andrew Forrest, the chief executive officer of the Perth-based company, said today in a statement.
Fortescue Approves $8.4 Billion Iron Ore Expansion
Fortescue joins Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three biggest exporters, in announcing expansions as prices increase. Producers are seeking to meet demand from steel mills in China, where consumption of the alloy is forecast by Rio Tinto to double by 2020 from 2008 levels.
“Fortescue will have to leverage their balance sheet,” Neil Goodwill, an analyst at Goldman Sachs & Partners Australia, said by phone from Melbourne. “In that sense, Fortescue’s expansion is more aggressive than BHP’s and Rio’s.”
Fortescue dropped 0.5 percent to A$6.70 at the 4:10 p.m. close of trade in Sydney, trimming its gain for the year to 51 percent compared with a 5 percent drop on the benchmark S&P/ASX 200 Index.
“The mix of external debt and cash flows will depend on market factors including iron ore price,” Fortescue said.
Junk Bond
Any sale of bonds will add to the $2.04 billion of five- year notes that Fortescue sold in October. That fund raising was the biggest of junk-rated dollar bonds by an Australian company. Under the terms of the sale, Fortescue said it’s “permitted to incur additional indebtedness.”
The project will boost annual capacity to 155 million metric tons from 55 million tons, Fortescue said, and involves increasing output at Chichester, building a new mining hub at Solomon, constructing 550 kilometers of railroad and expanding port facilities at Port Hedland.
Iron ore prices have rebounded led by recovering consumption in China. The average price for ore delivered to China was $145 a metric ton in the first half, according to The Steel Index. That’s more than double the average $69 a ton for the same period last year.
Rio, the world’s second-largest iron ore exporter, aims to increase production of the steelmaking ingredient to 330 million tons by 2015, up from a current 230 million tons while Melbourne-based BHP aims to nearly double iron ore output to 240 million tons a year by 2013. Vale aims to increase production to 522 million tons by 2015, up 68 percent from 2011’s projected 311 million tons.
Expansion Costs
Fortescue’s projected expansion costs of $85 a ton of iron ore are “in line” with expectations and “slightly less” than Rio Tinto’s, Alex Passmore, head of metals and mining at Patersons Securities Ltd., said by phone from Melbourne. He has a “buy” rating on the stock and is the most accurate predictor of Fortescue’s shares of 17 estimates compiled by Bloomberg.
China will build 10 cities larger than New York by 2025 and will need to import more steel, iron ore, coal, aluminum and copper, Rio’s Chief Economist Vivek Tulpule said last month. The nation’s economic growth will reach 10 percent in 2011, Caijing Magazine said in October, citing a report issued by the Chinese Academy of Social Sciences.
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