Just giving my probably biased comparision between BC Iron and Atlas Iron, and in the process trying not to bag AGO.
I've just read a article titled "Fund managers' top stock picks". In the article, Daniel J Rolley: Investment Analyst for Atom small cap fund, had AGO as his number 1 pick. This is what he had to say about AGO.
1) Atlas Iron (AGO): The WA-based iron ore producer is increasing production from its current 2 million tonnes annually (mtpa) to 6 mtpa by Dec 2010, then towards 12 mtpa in 2012. The stock is on a P/E of 2.5x 2012 earnings, and Rolley expects the stock to double from its present $2:06 towards his $4 target over the next 18 months. Forecast EPS growth for 2010 is 76 percent.
Why is there this love affair with AGO amoungst funds who specialize in small caps? I'm convinced that they all jump on the same bandwagon. It's sort of safety in numbers I guess. I try to live by the motto, "If everyone is running exuberantly in one direction ... Walk quietly by yourself in the other way".
I'd like to break up that article's stock recomendation on AGO, sentence by sentence.
***Atlas Iron (AGO): The WA-based iron ore producer is increasing production from its current 2 million tonnes annually (mtpa) to 6 mtpa by Dec 2010***
Atlas Iron is increasing to it's operating ceiling of 6Mtpa. AGO trucks all of it's IO through Port Hedland. The current limit of trucking through the town is currently 6Mtpa. This won't be increased. At the same time BCI wishes to make it's first shipment.
***then towards 12 mtpa in 2012.***
Only IF AGO can reach a agreement with FMG to rail it's extra 6Mtpa of ore. BHP isn't an option of AGO. FMG is there only alternative. The big difference between BCI and AGO is BCI reconized what FMG had to folk out money wise to create their Infrustructure system. And BCI gave half of the Nullagine Mine away to get a long term partnership with FMG. Where as AGO walked away from it's MoU with FMG on the basis I can only assume, that they weren't in their eyes willing to be bullied by FMG. But when David Flanagan of AGO uses words such as," As part of their Operating Licence (FMG), they must give third party access". Who's bullying who? There is absolutely NO garantee that AGO will get on FMG rail. IF they do, they will pay Commercial Rates that will be much higher than BCI's rates.
Although the rates agreed to between BCI and FMG remain secret for the NJV. It is widely believed by Ocean Equities and others that a rate of $10 per tonne has been charged to BCI by FMG for rail port and loading. (This is part of BCI's $43 per tonne Opex. Not an extra charge). Considering that 5 cents per tonne for rail ONLY is the current commercial rate this works out to be a good deal for BCI. If you consider the distance from Cloud Break (FMG)to Port hedland is 300Km. Rail expenses alone would have been $15 a tonne for BCI if we were to pay commercial rates.
Also the rate of 5 cents was at the height of the GFC. The current commercial rate could infact be higher now. FMG could easily claim that 5 cents wouldn't be enough. And they may be able to force AGO to pay a higher tariff. AGO after all has limited options. It may wish to appeal any perceived high commercial rate imposed on it. But AGO I'm certain would only pursue a legal route if it was their only remaining option.
The recent BHP/RIO vs. FMG,BRM,FRS and AGO court case, proved to AGO how long proceedings can be dragged out. And in the end, what FMG in particular thought would be an easy victory. Turned out to be mostly a win for BHP/RIO. Besides, everyone knew that BHP/RIO would appeal if it lost. More time. The QC representing BHP/RIO believed that the case could be dragged out so long that third parties would be looking at the earliest - 2014, before they had any hope of being on BHP or RIO rail.
So AGO in my opinion, isn't about to do the same sort of thing to FMG if they wish to be exporting 12Mtpa by 2012.
Even if AGO is exporting 12Mt by 2012. It still doesn't compare to BCI's 2.5Mt by 2012 when you compare Market Capitalization. Currently AGO's market cap is $1,037,564,657. Currently BCI's market cap is $137,614,040. For AGO to be on equal footing with BCI they would infact need to be exporting 18.85Mt to be the equivalant of BCI's 2.5Mt. For those who say, "But BCI is more speculative than AGO". Well I'd say to you. I'd much rather be best friends with Andrew Forrest, such as BCI MD Mike Young is. And have a SIGNED JV between FMG and BCI. Rather than AGO's position which is HOPING that FMG will come to the party and help out by transporting 6Mt of IO. If FMG doesn't do that, AGO will still be exporting 6Mtpa in 2012.
***The stock is on a P/E of 2.5x 2012 earnings***
BCI's P.E Ratio is 2.672 for 2011 at 1.5Mt (SP@$1.63). Considering that BCI is exporting 2.5Mtpa in 2012. The P.E Ratio would begin with a One at a SP of $1.63 for 2012.
***Rolley expects the stock to double from its present $2:06 towards his $4 target over the next 18 months. Forecast EPS growth for 2010 is 76 percent.***
Well if that's the case. Once BCI is re-rated by becoming a producer shortly. My target of $4 on BCI may not be that far fetched. Considering that BCI has better comparible numbers to AGO.
AGO holders I know about Ridley etc. And I know you're a lot closer to Port Hedland. But I personally believe by trying to go it alone. Which is what you did by walking away from FMG. That was AGO's biggest mistake. For all of those who mocked BCI for giving half of their mine away to strike an Infrustructure deal with FMG. The same people that praised AGO for not being, "Sell outs", like they branded BCI. Will in years to come discover that, that stance was a big mistake.
This is ALL only my opinion. DYOR.
BCI Price at posting:
$1.64 Sentiment: Buy Disclosure: Held
(20min delay)