Why the BC Iron Limited share price has been smashed today

This week has started much the same as last week ended for BC Iron Limited (ASX: BCI).

The junior miner’s share price fell 23.7% on Friday, down 34.1% for the week, and has dropped another 13.8% today. It’s trading for just 12.5 cents after falling to a low of 12 cents earlier, which was its lowest price since listing on the ASX in December 2006.

The recent plunge can largely be attributed to the crashing iron ore price. BC Iron produces less ore than rivals such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) and thus does not enjoy the same economies of scale. It maintains higher operating costs and produces lower quality ore, making it more susceptible to lower iron ore prices.

The iron ore price fell another 22 cents to US$38.30 a tonne on Friday, according to the Metal Bulletin, and it’s very possible that a number of Australia’s iron ore miners are already operating at a loss. Companies like Arrium Ltd (ASX: ARI) and Mount Gibson Iron Limited (ASX: MGX) are also extremely risky investment prospects right now.

However, the heavy decline in BC Iron’s share price recently can also partially be attributed to its recent announcement that it was conducting a “specific review of the various operating scenarios available to the Nullagine Joint Venture (NJV) in light of the recent material decline of the iron ore price.”

Notably, the NJV is a 75:25 unincorporated joint venture with fellow iron ore miner Fortescue Metals Group Limited (ASX: FMG).

Indeed, BC Iron has been hit hard by the commodities storm and last week’s announcement was the latest in the string of disappointments for shareholders. According to Google Finance, the company now boasts a market value of just $24.5 million, while I think it represents a very risky bet for individuals. It would be much better to put your money to work elsewhere, in my opinion.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

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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