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BC Iron suspends iron ore operations

BC Iron Limited (ASX: BCI) has temporarily suspended its Direct Shipping ore (DSO) operations at its Nullagine joint venture iron ore mine.

Shares remain in a trading halt, after being suspended yesterday at a share price of 19 cents.

The company says it’s possible that an ongoing low-grade ore operation could continue, with the company trialling a mine gate sale arrangement with joint venture partner Fortescue Metals Group Limited (ASX: FMG). BC Iron owns 75% of the Nullagine mine JV (NJV), with Fortescue the remaining 25%.

The company says that the NJV has around 11 million tonnes of low-grade stockpiled ore, and will undertake a trial to sell an unprocessed parcel to Fortescue. If the trial is successful, the NJV will continue to operate at a reduce rate and sell low-grade ore to Fortescue on an ongoing basis. BC Iron expects to make a decision on this alternative by the end of this month.

Fortescue is likely to just blend the low-grade ore in with its higher grade ore, so it’s really no skin off the larger miner’s nose to help BC Iron, and likely means it could save itself some cash.

BC Iron is not dead and buried just yet. The company’s Iron Valley project will continue to be operated by Mineral Resources Limited (ASX: MIN), and the Buckland mine and port development project in the West Pilbara remain unaffected. BC Iron also has a substantial cash balance of around $42 to $47 million at the end of December.

Unfortunately, the miner will probably need all of that and then some. BC Iron faces costs associated with suspending the Nullagine operations, including repayment of the rebated royalties to the state government. The WA government gave the junior miners royalty relief so they could continue operating and not have to pay royalties due until March next year.

Foolish takeaway

It probably won’t the last junior iron ore miner we see suspending operations, temporarily or otherwise, as the iron ore price continues to fall.

The other impact will be on mining services companies. Mineral Resources shares have dipped 4.3% suggesting investors are concerned about the Iron Valley project remaining open.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.

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