Enough has been written about the fall in iron ore prices and the decline of miners like BC Iron Limited (ASX: BCI) that I won't repeat it here.
Suffice to say, with the tactics employed by BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) and a big question mark over Chinese demand for iron ore, low prices are sticking around for the foreseeable future.
Currently at around US$62 or $79 in our figures, booming supply and uncertain demand seem to dictate that iron ore prices will hover around this level or decline over the near term.
With that in mind, it's time to look at BC Iron's ability to weather the short term, and grow over the long term.
Management has done great work identifying new opportunities and lowering costs in the past 12 months, so let's see what the first half of 2015 brought investors:
- Nullagine Joint Venture* (NJV; BCI's flagship mine) produced 2.33 Million Wet Metric Tonnes (M wmt) at an average realised price of US$64
- Clay found in iron reduced NJV production and increased costs compared to prior periods
- Revenue down 56% to $133m
- Loss of $96.3m (down from profit of $69.6m in prior period; includes non-cash impairment charges)
- Underlying loss (excluding one-off costs and impairments) of $18.4m after tax
- Iron Ore Holdings acquisition completed
- First ore shipped from Mineral Resources Limited (ASX: MIN) Iron Valley project
- No dividends
- $110m in cash at 31 Dec
*The NJV is a partnership with Fortescue Metals Group Limited (ASX: FMG), who owns 25% of the project while BC Iron owns and operates the remainder.
Clay found in NJV was a major hurdle in the first half, reducing output and increasing waste and costs as the problem was rectified.
However on the plus side, first income from the Iron Valley project and additional cost savings should stand the company in good stead going forwards.
BC Iron's latest Free On Board all-in cash cost estimates have been revised to $54-61 per wet metric tonne for the remainder of 2015.
Using the upper limit of these estimates, BC Iron can produce profitably, while the US$ cost of iron ore remains above US$48 or so.
With $110m cash in the bank and reduced costs, BC Iron looks to be in a strong position to weather the current market environment. Major market shocks such as a reduction in Chinese demand would definitely force a re-think, however.
Looking more long term, the partnership with Mineral Resources and the additional tenements brought through the Iron Ore Holdings acquisition provides a number of viable projects to ramp up demand as markets improve.
I'm still avoiding the sector because of its uncertainty and the inability of small miners to control prices. However it seems that some of the clouds hanging over BC Iron are clearing, at least for the moment.
