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How long can BC Iron Limited survive?

BC Iron Limited (ASX: BCI) announced today that it had a cash balance of $42.9 million, down from $71.8 million at the end of September 2015.

The impact of falling iron ore prices and BC Iron’s relatively high production costs means the miner is constantly behind the eight ball. The company says it had all in cash costs of $59 per wet metric tonne (wmt) during the December 2015 quarter – but only received $52 per dry metric tonne (dmt).

That’s a substantial discount to the benchmark iron ore price – which averaged US$47 per tonne during the quarter.

The difference between wmt and dmt is the amount of moisture content per tonne, with wmt typically receiving a lower price than dmt. Even ignoring the differences, BC Iron is losing $7 a tonne it produces, and the miner shipped 700,000 tonnes in the quarter.

BC Iron’s main mine – the Nullagine JV with Fortescue Metals Group Limited (ASX: FMG) has been temporarily suspended, with the company now turning its attention to the 11.1 million tonnes of low-grade iron ore stockpiled. A trial sale of low-grade ore to Fortescue is expected to take place in February 2016, but the Nullagine JV appears unlikely to recommence operations anytime soon.

That virtually leaves BC Iron with its Iron Valley asset, operated by Mineral Resources Limited (ASX: MIN) and its Buckland project, but there’s no guarantee it will even begin commercial operations at current iron ore prices.

Foolish takeaway

BC Iron faces a number of major issues including;

  1. The loss it is making on the ore it produces,
  2. A dwindling cash balance which may require a further injection of capital,
  3. A legal dispute with former mining services contractor Watpac Limited (ASX: WTP),
  4. The high likelihood of a major writedown of its assets and,
  5. The obligation to start repaying rebated royalties of $9 million to the state government in March 2016.

How any company can survive given those headwinds is beyond my comprehension.

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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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