Iron companies across the ASX have enjoyed a stellar rise over the past six months on the back of sustained high iron prices.
Arrium (ASX: ARI) is up over 100%, Mount Gibson Iron (ASX: MGX) has nearly tripled and a raft of other iron companies, including Fortescue Metals (ASX: FMG) and Atlas Iron (ASX: AGO), have enjoyed large increases. Even massive mining conglomerates Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) have generated rises of 25% or more since June.
In comparison, iron prices have only risen around 13% during that time, which may indicate that the iron miners have been out of favour with the market or that the market was surprised at the length and magnitude of the price increases. To my mind, one iron company, BC Iron (ASX: BCI), tops them all. Generating a 74% price increase since June (from ~$3.00 up to ~$5.20), BC Iron also delivered a 30c final dividend for the year.
If you were lucky enough to buy at $3.00, this represents an 11% return – and that comes on top of a 5c interim dividend earlier in the year. Even if you were to purchase the company today, BC Iron’s fully-franked dividend equates to approximately 6.73% (at today’s value) over the past 12 months — a dividend that appears likely to continue for the next couple of years barring a serious crash in iron prices.
BC Iron has ore bodies for another seven years of production at its current rates. This iron miner also retained 40% of its profits this year to conduct exploration in a number of tenements alongside its current site, and hire a contractor to conduct a beneficiation project for low-grade ore, which has the potential to add another 2-5 years to mine life.
BC Iron (or indeed many of the other miners listed) is not a stock you can buy and forget about. In the worst case scenario, this iron miner might run out of ore in seven years. If you believe it can continue to find new ore bodies and iron ore prices remain around today’s levels or slightly lower, BC Iron has the potential to generate income on par with the best stocks on the ASX. If iron ore prices rise or fall drastically, shareholders could be in for a wild ride.
Motley Fool contributor Sean O’Neill owns shares in BC Iron and Rio Tinto.