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BC Iron’s 11.7% dividend

Junior iron ore miner BC Iron (ASX:BCI) has delivered a nice surprise to shareholders, announcing a 30 cent final dividend, to go with the 5 cent dividend it paid out earlier this year.

At the current price of $4.27, that equates to a dividend yield of 8.2%, or a grossed up dividend yield of 11.7%. It’s also more than double the 15 cents BC Iron paid out to shareholders last year.

It comes as the iron ore producer reported another strong year with underlying profit rising 41% to $71.4 million, on the back of record full year production of 5 million tonnes of iron ore at its Nullagine Iron Ore Joint Venture with Fortescue Metals Group (ASX:FMG). BC Iron currently owns 75% of the Joint Venture, after buying back 25% from Fortescue in December 2012.

In 2009, BC Iron handed over 50% of the Nullagine mine, in return for access to Fortescue’s port and rail infrastructure, and is the envy of smaller iron ore miners such as Brockman Mining and Atlas Iron (ASX:AGO), which are having difficulty getting their ore to port. Mount Gibson Iron (ASX:MGX) for instance, has to truck its Tallering Peak ore 65 kms to Mullewa before loading onto rail wagons and transported 98kms to the port of Geralton .

BC Iron’s share of iron ore shipments rose 78% from 1.8 million tonnes in 2012, to 3.2 million tonnes in 2013, with cash operating costs dropping 40% to an astonishing $38 a tonne. Production is expected to rise to 6 million tonnes in 2014, with BC Iron’s share coming in at 4.5 million tonnes.

The strong cash flows have not only enabled BC Iron to pay whopping dividends, but also pay down debt. The company’s cash balance at the end of June stood at $138.5 million, with total debt of around $100 million, leaving BC Iron in a net cash position. Most of the current debt is die to BC Iron paying Fortescue $190 million buying back the 25% share of their JV.

Foolish takeaway

With substantial reserves of ore, availability of rail and port infrastructure, and low cost production, BC Iron should see a stronger result in the 2014 financial year – and could reward its shareholders with big dividends again. Add this one to your watchlist.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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