Mitsui Taking a Stake in an Iron Ore Asset: Interesting Valuation Perspective!

Written By Tshepo Magagane

Firstly, they call it high grade and taking a closer look at it, this is 61% – so they cant be looking at HBI/DRI.

They why pay up this much for the asset

Relative comparison – PFS only coming out this year and first ore in 2030…yet they are paying 

0.9x NAV (10% discount rate for the 100bn yen) when using 40Mtpa and 0.3x NAV (250bn yen) when using 100Mtpa

So more strategic?

Trading (assuming it is not included in those cashflows Mitsui did themselves) side gives me USD700m NPV at USD5/t trading fee at 40Mtpa for Mitsui’s nomination rights and USD1.8bn at 100Mtpa!

What am I missing here?

Sumitomo took a 30% stake for USD400m in a Tier 2ish (slightly inferior) Rio Copper asset in Dec – are the Japanese the Chinese of the 00s with the Aussies?? 

And when I look at the “phosphorous” element being included in the investment case, shows you how important experience in when sitting on a IC…for me it is a red flag, of all the deleterious elements in Fe, this is the one I would be least concerned about (you just wash it off) – why it the proposing team highlighting it? And they are not mentioning the important ones such as silica! You need battle scars in extractives…phew!