Production up, prices down. So it goes for iron ore miners such as the Pilbara’s BC Iron.
At 1100 AEST BC’s shares were down 2 cents, or 0.6%, to $3.55. The stock has surged 51% in the last 12 months. The S&P200 Index has gained 22% during the same period.
The Perth-based miner’s average cost and freight iron ore sales price in the three months to June 30 was $US111 a tonne. That’s a 15% decline from the previous quarter when BC’s iron ore fetched on average $US131 a tonne.
But the Perth-based company enjoyed record quarterly cash flow. At its Nullagine joint venture, 75% owned by BC and the rest by Fortescue, a record 1.6 million wet tonnes of iron ore were shipped enabling BC to garner record quarterly operating cash flow of $85 million.
BC has used this cash to repay $US30 million of debt ahead of schedule, borrowing that was undertaken to increase its stake in Nullagine by 25% by paying more shares from Fortescue.
Nullagine’s annual production rate is now 6 million tonnes. In the 12 months to June it produced 5 million tonnes. BC forecasts its cost of production at between $46-$50 a tonne in the 12 months to June 30, 2014.
The company gave no forecast for what price it expects for its iron ore but did say it expects to spend $20 million on its operations (see Tim Treadgold's Is it iron curtains for small producers?).
BC says it is committed to providing Henghou Industries with 2.6 million tonnes of iron ore from Nullagine over the next six years at a discount to the Platts price, average cost and freight, 62% iron content.
The remaining iron ore is sold at a price aligned with the Platts price. If the Platts price averages more than $US120 a month, BC will pay Fortescue the difference between the actual monthly Platts price and $US120 a tonne, multiplied by BC’s share of the monthly production increase.
No such payment was made to Fortescue in the June quarter. Such an arrangement continues between the two companies until the later half of 2014. Nullagine has iron ore reserves of 37.2 million tonnes with 57.1% iron content in the East Pilbara region of Western Australia, 140km north of Newman.