Shares of junior iron ore miner, BC Iron Limited (ASX: BCI), received a double-whammy of positive news today, sending its share price skyward.
On the back of a 5.9% jump in iron ore prices overnight and the release of its quarterly activities report this morning, BC Iron shares soared as much as 42% in morning trade.
However, BC Iron shares are still down 91% over the past year because the iron ore price has plunged to multi-year lows on fears of a Chinese economic slowdown, and the chronic oversupply of seaborne ore.
BC Iron is a single-commodity producer with its flagship project, Nullagine, being a joint venture between it and Fortescue Metals Group Limited (ASX: FMG).
Following the fall of Atlas Iron Limited (ASX: AGO) earlier in the month, investors have held grave concerns for fellow ASX-listed miners with high costs, such as BC Iron.
However it appears the market is ecstatic with what it read in this morning's quarterly report.
BC Iron reported 1.46 million tonnes of ore shipments were made during the three months to 31 March 2015, up 20% on the prior corresponding period. BC Iron's share of this was 1.04 million tonnes.
In addition, the company said its all-in cash costs (which includes C1 cash costs plus royalties, marketing and corporate costs) was $52 per wet metric tonne (FOB) during the period.
BC Iron's product doesn't sell for the full price of the benchmark 62% Fe Platts index, which is often quoted in the financial media. Instead, due to quality factors, BC Iron receives a slightly lower price for its ore.
Whilst the benchmark price averaged $US62 per dry tonne during the quarter, the miner achieved an average realised price of $US57 per dry tonne.
Unfortunately for BC Iron – and its peers – iron ore has fallen further since the beginning of 2015. Even with its 5.9% jump overnight, the steel-making ingredient is currently trading around $US54.04 a tonne.
Don't forget that's for benchmark grade iron ore.
BC Iron Managing Director, Morgan Ball, said the miner recognises the tough environment but has a good cash balance and will continue to make prudent decisions.
"BC Iron is underpinned by a strong balance sheet with A$107.5 million cash, an improving cost position at Nullagine and ongoing cash flow from the Iron Valley operation," Mr Ball was quoted as saying in the company's ASX announcement. "However, we are very cognisant of the external environment and will continue to make appropriate and pragmatic decisions."
At reporting date, BC Iron had $46.9 million of debt.
BC Iron: A falling knife or bargain?
Whilst it appears some investors are falling over themselves to get a slice of iron ore miners today. It's been a completely different story over the past two years.
Rather than a bargain, I'd say long-term investors buying today would be catching a falling knife.
According to Investopedia technical analysts believe a 'dead cat bounce' is "a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend." Whilst I wouldn't wish technical analysis upon my worst enemy, I think the term aptly describes what we could be seeing in BC Iron shares today.
Whilst the company is well-run, the unfortunate reality is the market is plunging further into oversupply at a time when demand from China – accountable for two-thirds of the world's steel consumption – is expected to wane.
I think investors would be wise to avoid iron ore stocks, for now.
