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BC Iron Limited announces record revenue and profit: Should you buy?

What: Today, BC Iron Limited (ASX: BCI) shareholders have woken to news that the junior iron ore miner has posted yet another record revenue and profit result. Thanks to increased production at the Nullagine Joint Venture (NJV) with Fortescue Metals Group Limited (ASX: FMG), cash flows grew strongly and have prompted the board to issue a final dividend of 15 cents per share, taking the full-year payout to 32 cents per share. With shares at just $2.90, it puts the stock on a trailing dividend yield of 11.03% fully franked or over 15% grossed-up!

Highlights

  • Revenue grew 44% to $471 million
  • EBITDA jumped 36% to $152 million
  • NPAT jumped 51% to $73.6 million
  • Final dividend of 15 cents per share

So What: BC Iron is a junior iron ore miner which has managed to achieve stellar results despite a very challenging market place which has seen the iron ore price fall over $US45 per tonne to just $90 per tonne since the beginning of 2014. However its management have continually maintained strong balance sheets and kept unit costs a top priority. In FY14, it grew cash on hand 15% to $158.9 million and paid down 49% of its debt.

Now What: In FY14 BC Iron realised an average price of $US106 per dry metric tonne of ore, down 5% from $US112 in the prior period. Its free on board cash operating costs (that is, costs at mine level) were $52 per wet metric tonne, up from $49 per tonne a year earlier. It’s important to note that its total cash cost is considerably more than this.

In FY15 management are targeting NJV sales of $6.2 million wet metric tonnes and total costs (including C1 cash costs, royalties, marketing and corporate costs) will likely be in the range of $60 to $68 per tonne. Total capex spend, net to BC Iron, will likely be in the range of $26 million to $31 million.

To buy, or not?

As cheap as it looks, BC Iron isn’t without considerable risk and although falling iron ore prices appear the most obvious risk, the possibility of increasing costs is another serious threat. In regards to the company’s acquisition of Iron Ore Holdings Ltd. (ASX: IOH), if the iron ore price stays below $A90 per tonne for 20 consecutive days, the takeover offer could be rescinded.

So despite its huge dividend yield, the risk of capital loss is large and when there are other high yielding dividend stocks available (see below), why take the risk?

For example, our top analyst recently identified one CHEAP growth stock which has a 6.8% grossed-up dividend yield, which I think is a great long-term buy! You can get the name of his 'ultra-promising story stock' FREE in our new research report. Simply, click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

Motley Fool Contributor Owen Raszkiewicz has no financial interest in any of the companies mentioned in this article. 

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