Remember a previous article where Fortescue was upset by new 30% australia (May 2012) export tax after their marginal costs rose to over 100/ton-trying to fill all of chinas increased needs(before china slowdown to 7.7% increase this year) after the euphoria of feb 2011 high of 192/ton(best source). the big 3 have average costs of 40-60 to put ore in china while cwrn has production costs of probably less than 10 but adding 9.24 trucking -may 26 2011 PR-and hoped for shipping of 16/ton(see public cwrn source) on a 60000 ton ship and incidentals and cwrn can put ore in china probably for 40-45/ton-so ship er out before china falls into the sea!

Fortescue Metals still riding the roller-coaster to China

Iron ore: How hard can it be? Photo: Greg McKenzie

VALUING iron ore miners should be easy for investors. The company digs up the ore, puts it on a ship and sells it to a steel mill in Asia. How can such a straightforward business be so opaque to shareholders?

Several times this year we have written about the leveraged nature of Andrew Forrest's Fortescue. Australia's third-largest iron ore play hit the wall in August when iron ore slumped from $US140 a tonne to $US86. In the middle of tripling production, Fortescue was forced to restructure its debt. Within days it trumpeted a new debt deal, with the repayment schedule extended and the production plans scaled back.

Over that period the iron ore price rallied to $US120 and Fortescue's shares jumped 50 per cent to $4.31 in a matter of weeks.

Since then the stock has floundered and is back at $3.72. At its annual meeting Fortescue outlined its cost of production and where it was positioned compared with its competitors.

The investment market generally believed Fortescue sat nicely behind the big boys - BHP, Rio Tinto and Vale - and well under the high-cost producers in China. This meant that with the debt burden eased, the company could sustain an iron ore price of around $US100 a tonne, with the Chinese companies falling by the wayside first.

What was not well known was the ability of the Chinese government to support local producers by cutting $US25-a-tonne taxes to keep them in the game. A final decision has not yet been made. But an easing of the taxes charged would see the Chinese players at or below Fortescue's costs once interest bills are taken into account. With iron ore around $US115 a tonne, investors are getting nervous now the high demand is passing by.