iron ore sales, page-2

Hi cjmmt06,

I hope this helps.

Not meant as financial advice.

"Following the recent falling iron ore price, do you think BCI will keep its healthy cash flow backed by its Chinese background offtake partner?"

Obviously as the iron ore price falls, so does BCI's margins. Maybe you're wanting figures to gauge in your own mind what you consider a healthy margin, as follows:

I believe the spot price is currently around AUD$129. BCI was still cash flow positive when the price hit USD$88 last year.

BCI's off-take partner is HengHou Industries. HengHou provided the NIOJV with USD$50 for capex, this was interest free to be repaid over 5 years.

In exchange for providing capex, HengHou was/is to receive 20Mt of ore over 8.5 years, an option package and a agreed discount that's privy to the NIOJV and HengHou only. That agreement between HengHou and the NIOJV was linked to the spot price, the discount given to HengHou was estimated to be around 5% (my speculation) to the spot price.

Also to note, when BCI gained an extra 25% of the JV recently. BCI wasn't contractually obligated to sell any of this extra ore to HengHou. Infact BCI management made it clear that the extra 25% would be linked to the spot price rather than HengHou. BCI seems to be happier to sell away from their off-take partner, obviously to receive a better price. BCI has the benefit of FMG for marketing. BCI pays FMG 3.5% of their price for marketing. BCI's original steel merchant was Tennant metals. The fact that BCI moved away from Tennant for FMG may indicate that there was a superior price for BCI through FMG.

Also to note, BCI management has publically stated that as long as the spot price remains above AUD$60, Bonnie fines (BCI) are viable.

I said in a recent post that BCI may earn over a dollar per share if they continue to deliver good cash flows as seen in the last quarterly. Considering that BCI made $41M in the last quarter and there's 122M shares. $41M x 4 = $164M. Well above the required $122M needed to have a EPS of $1. What I'm saying is in some aspects I've been conservative. However I concede there's a reasonable expectation that an average price above AUD$130 (as recently seen) over the next 12 months may not be meet. But there's also no signs of a collapse in the spot price either. The fall of the Aussie dollar is helping as well.

Regarding: "Who has any thought on its sales percentage out of the annual production?"

I think you are saying, what percentage is sold to HengHou and what is sold on the spot price.

If that's right than of the 4.5Mt, around 1.5Mt would go to HengHou and 3Mt on the open market. But that's just an educated guess going on the figures. But I really wouldn't know, that's obviously up to management. To note, the 20Mt over 8.5 years was connected with the NIOJV and not BCI exclusively.

"As fas as known, FMG was also involved in sales?"

Yes, BCI pays FMG 3.5% to sell BCI's ore for the best price.