Volatility continues in the iron ore space, with the metal's price searching for a bottom and its producers experiencing substantial share price swings. However, BC Iron is perhaps in the sweet spot of having a solid balance sheet and low enough cash costs to survive the current downturn, but high enough costs to offer substantial leverage in the event of an upswing.
Volatility continues in the iron ore space, with the metal's price searching for a bottom and its producers experiencing substantial share price swings. BC Iron (ASX: BCI) surged almost 20 percent last week on no particular news other than recent production and cost guidance for its flagship Nullagine Joint Venture (NJV) with Fortescue Metals Group (ASX:FMG). The update follows the company's recently completed merger with Iron Ore Holdings, which prompted it to bed down its Western Australian operations, reducing staffing costs, winding back high-cost haulage contracts, optimizing operations and substantially reducing the size and cost of its board of directors. That work has perhaps placed the company in the sweet spot of having a solid balance sheet and low enough cash costs to survive the current downturn, but high enough costs to offer substantial leverage in the event of an upswing. In last week's report, BC Iron states that it has achieved ramp up to an annualized run rate of 6 million metric tons (MT) year, but reaffirms guidance for the remainder of the 2015 fiscal year (to end June) of between 5.2 and 5.6 million wet metric tons (wmt). More importantly, however, BC Iron states that for that period it should have C1 cash costs of AU$47 to $51 per wmt (US$38 to $41.5 per wmt) and all-in costs of AU$54 to $61 per wmt (US$44 to $50 per wmt). In addition, the company notes that it has reduced its planned capital expenditure for the NJV to AU$13 to $16 million (US$10.5 to $13 million) for the 2015 fiscal year. BC Iron produces a slightly sub-premium product, but these cost projections affirm that the company remains cash positive in the current market and is likely to remain so even if the iron ore price falls further. Coupled with a healthy cash balance, moderate debt levels and minimal capital expenditure requirements due to its use of third-party transport infrastructure, the company seems to be in a reasonably healthy situation in the current market. Perhaps not especially profitable, but not at immediate risk of the cash flow stress that has impacted other miners in the space in recent times.