Here’s why BC Iron Limited surged 7.6% today

Junior Pilbara miner BC Iron Limited (ASX: BCI) has staged a turnaround today, turning an 8.9% decline into a 7.6% rise after the company issued an update regarding its operating costs.

Recognising the challenging environment currently blanketing the iron ore sector, BC Iron has been focused on reducing costs at its Nullagine mine, which is a joint venture with Fortescue Metals Group Limited (ASX: FMG).

By way of cutting staff and the “termination of a higher cost road haulage contract”, BC Iron said its cost reductions would result in savings of between $2-$3 per wet metric tonne (wmt). It lowered its cash cost guidance for the remainder of the financial year to $47-$51 per wmt, and $54-$61 per wmt for all-in-cash costs.

Full-year capital expenditure for the mine has also been reduced from $23-$26 million to between $13-$16 million, while sales guidance of between 5.2 million and 5.6 million wmt has been maintained.

Although the miner will focus on reducing costs even further, BC Iron still remains an extremely risky bet. Investors need to remember that, although the spot iron ore price is currently around US$69 a tonne, BC Iron will be receiving a lesser price due to its ore being of a lower grade compared to that produced by Rio Tinto Limited (ASX: RIO).

With some forecasting iron ore to sink below US$60 a tonne, the miner’s already-tight margins will continue to be squeezed while the shares could also fall further. Despite the optimistic update, investors would be wise to give this stock a wide berth and should instead look to capitalise on some of the market’s other compelling opportunities.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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