Despite adverse weather bringing huge amounts of rain upon BC Iron's (ASX: BCI) Nullagine Joint Venture (NGV) project in the Pilbara, the company has impressed this Fool.
NGV is a 75%-owned iron ore project with Fortescue (ASX: FMG) (25%). It is located approximately 50km North West of Fortescue's Christmas Creek rail that connects various projects direct to Port Hedland, where iron ore is shipped to customers internationally. The agreement between the two pure play iron ore companies has allowed BC Iron to keep costs between $46 and $50 per tonne.
This low cost enables the company to have a healthy buffer between the cost and sale of the iron ore price. Throughout the June quarter the company realised US $111 per tonne, down 15% from the same time last year but still managed to pay down US$30 million of debt ahead of schedule.
In December 2012, the company also decided to acquire another 25% of the NJV which "created the momentum to achieve several important milestones" including 12% increase of iron ore shipments, taking the total to 5 million tonnes in the past year. It has also allowed the company to increase its production guidance to between 5.8 and 6.2 million tonnes annually in FY14.
Outlook
Yesterday's quarterly update reinforced that BC Iron is one of the best iron ore miners on the domestic stock market. Since its listing in December 2006, the company has proven to be one of Australia's most successful pure play iron ore miners, increasing some 295% in share price. The company's minimal debt levels and strong operating cash flow has enabled it to focus on further expansion throughout the Pilbara and internationally.
The company also reinforced its intention to pay dividends and remains committed to sustainable growth opportunities. Its $138.5 million in cash is also extremely positive for shareholders because management can use the funds in its development of the strategic alliance with overseas partner Cleveland Mining. It will also enable the company to keep up its exploration activities, which cost around $20 million annually.
Foolish takeaway
Compared to its peers like Fortescue and Atlas Iron (ASX: AGO), BC Iron ticks all boxes for investors who are risk averse, but still have a desire to enter small-cap mining stocks. The company's strong cash flow, balance sheets and short- to medium-term outlook are positive.
However, lower iron ore prices will take a toll on profits even though the falling Australian dollar will provide a boost. Directors have been buying stocks in their own company in recent months and it is a positive sign of management's faith and outlook for stock. BC Iron is definitely worthy of a spot on investors' watchlists.
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More reading
- BHP, Rio reports are bad news for iron ore
- What Rio Tinto's quarterly production report reveals
- BHP's report strong, but blemished
Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
