BC Iron: who wants a 10% yield?

A high yield is a warning as much as it is an opportunity. Most often, it signals the market’s verdict that a business’s current earnings and dividends are set to fall. This is perfectly illustrated by iron ore miner BC Iron. Currently trading on a miserly PER of under 5, BC purports to offer a yield of almost 10%. With iron ore prices falling – we think they have far further to fall – lower profits are widely tipped. The market’s scepticism is spot on. Yet BC doesn't face the enormous capex of peers. It uses a low cost trucking...

A high yield is a warning as much as it is an opportunity. Most often, it signals the market’s verdict that a business’s current earnings and dividends are set to fall. This is perfectly illustrated by iron ore miner BC Iron. Currently trading on a miserly PER of under 5, BC purports to offer a yield of almost 10%. With iron ore prices falling – we think they have far further to fall – lower profits are widely tipped. The market’s scepticism is spot on. Yet BC doesn't face the enormous capex of peers. It uses a low cost trucking operation and has infrastructure deals in place. Costs are low and iron quality high. Even at lower prices, the company will generate decent returns. We don’t recommend buying at current prices but, as a shakeout of the iron ore sector begins, BC is one miner worth watching for the contrarian minded.

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