Natural Resources

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Published 07-JUL-2013 00:00 A.M.

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1 minute read

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O verview: BC Iron Limited ("BC Iron, the Company") is an iron ore mining company with assets in the Pilbara region of Western Australia. The Company’s core focus is a 75 percent interest in the Nullagine Iron Joint Venture with Fortescue Metals Group Limited (ASX: FMG). We’ve maintained coverage for its profitability and financial strength. Following a stop level breach, our last advice was to ‘sell’ at $3.25 in March. However, with the stock holding firm amid challenging market conditions, we reconsider its outlook?

Catalysts: Whilst iron ore prices contracted 10 percent during the June qtr, BC Iron continues to generate strong cash flow. It is rapidly extinguishing borrowings used to opportunistically increase its stake in the Nullagine JV. Operational performance at Nullagine is impressive, achieving nameplate production of 6mtpa and asserting cash costs below $50/t. We expect mine life extensions, ongoing cash flow strength, and recent liquidity initiatives for the share register to drive value growth.

Hurdles: Current mine life of the Nullagine JV is limited to 2020, and increased waste stripping could elevate costs in coming years. Enhanced shareholder liquidity has coincided with the exit of Regent Pacific, which used an existing cornerstone stake as a platform for a takeover bid that failed during 2011.

Investment View: With reserve replacement during 2012 exceeding production to date, we are optimistic for possible mine life extensions. Recent margin resilience has also been impressive amid weakening spot markets. The Company is ideally positioned to consolidate under-funded juniors in the region, and its valuation appears undemanding relative to cash flow. We are upgrading our view to ‘buy’.



General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.

 

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