This junior iron ore miner is still making cash

Photo: Jon Benwell Flickr

Mount Gibson Iron Ltd (ASX: MGX) revealed yesterday that its quarterly all-in group cash costs were just $47 per tonne – the equivalent of US$32.50 a tonne.

Receiving roughly US$36 a tonne during the quarter meant Mount Gibson managed to add $15 million to its bulging cash and term deposit balance, which now stands at $345 million (For comparison, Mount Gibson’s market cap is just $185 million).

As CEO Jim Beyer explains, “In the face of extremely tough market conditions in the December quarter, during which prices fell to their lowest level in a decade, it was a significant achievement to add to our cash reserves through continued strong operational performance at Koolan Island and Extension Hill.

Stormy seas ahead?

However, there are clouds on the horizon for both of Mount Gibson’s mines. Koolan Island is scheduled to transition to care and maintenance around April 2016, while the company continues to evaluate the potential to reinstate the Main Pit seawall (which had previously collapsed). The company is suing the engineers responsible for building the seawall.

Extension Hill is coming to the end of its operational life, although the company says it may be able to extend operations through to early 2017. However, the company also says that it is closely monitoring the viability of operations at Extension Hill. Should the mine close early, the company could be liable for up to $26 million in transport obligations.

Mount Gibson will then be looking to developing its Iron Hill deposit – but still needs environmental and development approval.

Foolish takeaway

Like other junior miners, BC Iron Limited (ASX: BCI), Atlas Iron Limited (ASX: AGO) and Arrium Ltd (ASX: ARI), Mount Gibson is operating close to the point where it might need to close down operations if iron pre prices fall much further from where they are now – around US$41.10 a tonne.

Mount Gibson may just need all that cash it has tucked away.

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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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