BC Iron Limited shares soar 42%: Is it a dead cat bounce or bargain?

Junior iron ore miner, BC Iron Limited (ASX:BCI), has soared after releasing its quarterly report – is it a dead cat or a buying opportunity?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of junior iron ore miner, BC Iron Limited (ASX: BCI), received a double-whammy of positive news today, sending its share price skyward.

BC Iron bounce
Source: Google Finance

On the back of a 5.9% jump in iron ore prices overnight and the release of its quarterly activities report this morning, BC Iron shares soared as much as 42% in morning trade.

However, BC Iron shares are still down 91% over the past year because the iron ore price has plunged to multi-year lows on fears of a Chinese economic slowdown, and the chronic oversupply of seaborne ore.

BC Iron is a single-commodity producer with its flagship project, Nullagine, being a joint venture between it and Fortescue Metals Group Limited (ASX: FMG).

Following the fall of Atlas Iron Limited (ASX: AGO) earlier in the month, investors have held grave concerns for fellow ASX-listed miners with high costs, such as BC Iron.

However it appears the market is ecstatic with what it read in this morning's quarterly report.

BC Iron reported 1.46 million tonnes of ore shipments were made during the three months to 31 March 2015, up 20% on the prior corresponding period. BC Iron's share of this was 1.04 million tonnes.

In addition, the company said its all-in cash costs (which includes C1 cash costs plus royalties, marketing and corporate costs) was $52 per wet metric tonne (FOB) during the period.

BC Iron's product doesn't sell for the full price of the benchmark 62% Fe Platts index, which is often quoted in the financial media. Instead, due to quality factors, BC Iron receives a slightly lower price for its ore.

Whilst the benchmark price averaged $US62 per dry tonne during the quarter, the miner achieved an average realised price of $US57 per dry tonne.

Unfortunately for BC Iron – and its peers – iron ore has fallen further since the beginning of 2015. Even with its 5.9% jump overnight, the steel-making ingredient is currently trading around $US54.04 a tonne.

Don't forget that's for benchmark grade iron ore.

BC Iron Managing Director, Morgan Ball, said the miner recognises the tough environment but has a good cash balance and will continue to make prudent decisions.

"BC Iron is underpinned by a strong balance sheet with A$107.5 million cash, an improving cost position at Nullagine and ongoing cash flow from the Iron Valley operation," Mr Ball was quoted as saying in the company's ASX announcement. "However, we are very cognisant of the external environment and will continue to make appropriate and pragmatic decisions."

At reporting date, BC Iron had $46.9 million of debt.

BC Iron: A falling knife or bargain?

Whilst it appears some investors are falling over themselves to get a slice of iron ore miners today. It's been a completely different story over the past two years.

Rather than a bargain, I'd say long-term investors buying today would be catching a falling knife.

According to Investopedia technical analysts believe a 'dead cat bounce' is "a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend." Whilst I wouldn't wish technical analysis upon my worst enemy, I think the term aptly describes what we could be seeing in BC Iron shares today.

Whilst the company is well-run, the unfortunate reality is the market is plunging further into oversupply at a time when demand from China – accountable for two-thirds of the world's steel consumption – is expected to wane.

I think investors would be wise to avoid iron ore stocks, for now.

Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below) or you can follow him on Twitter @ASXinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »