suspension, page-2

Trading halt is a pointer that BC Iron is about to sharpen its drilling program
Email Print Normal font Large font AdvertisementAdvertisementBarry FitzGerald
November 26, 2007
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BC IRON chief Mike Young swept through town last week, on a roadshow about the status of the group's Nullagine iron ore project.

It must have gone well - by the time the energetic Young was back in Perth, BCI had gone into a trading halt pending an announcement.

There are no prizes for guessing the likely reason for the trading halt as allowing BCI to bed down a share placement to fund an aggressive 2008 drilling program.

The rumoured $7-$10 million institutional placement would keep BCI on track to confirm the 70-million-tonne potential of its channel iron deposits, with confirmation of an initial 30 million tonnes-plus expected early in the new year.

There are plenty of juniors with their foot on good-sized iron deposits in Western Australia, be it in the Pilbara or the mid-west. What gives BCI the edge on most of them is the location of its Nullagine tenements - up close to Fortescue Metal's shiny new Cloud Break and Christmas Creek projects.

More to the point, BCI's iron ore is in easy trucking/spur line distance of Fortescue's "open access" railway - the first third-party-friendly infrastructure in the Pilbara.

One of the first things Young did after BCI listed last year was to sign a memorandum of understanding with Fortescue for the bulk transport of up to 5 million tonnes a year of iron ore, as well as mine gate sale options or a potential joint venture.

It was all about BCI getting into production as quickly as possible, either through access to the railway or through a mine gate sale to Fortescue. Either way, BC Iron is eyeing an early move to production and cash flow to capitalise on the strength of the iron ore market.

A scoping study is set to kick off as early as March, and a full-scale feasibility study towards the end of the year.

That's not bad for a company that only had its $6 million float last December. It is now valued by the market at $97 million ($1.69 a share last sale), with a re-rating to come as the exploration potential of its tenements is converted into stock-exchange-compliant resources/reserves. BCI was the product of the combination of adjacent iron ore tenements of the highly sought after manganese producer Consolidated Minerals, and Alkane Resources. They now hold 28% and 17% respectively.

Given ConsMin will eventually fall in the takeover shoot-out between Palmary and Pallinghurst, there will be questions before long on the future of the 28% stake in BCI.

If the winning bidder for ConsMin doesn't want to stick around, the 28% BCI stake will take on obvious strategic value in a sector that is hotter than hot.

As an aside, ahead of BCI's roadshow, the mining analyst at Lonsec, John Macdonald, valued the group's shares at a risk-adjusted $125 million or $2.15 a share.

Add back the 30% discount for technical and financial risk and the valuation became $178 million or $3.06 a share. For those who believe Fortescue will live up to its open-access line, the 30% discount would seem to be overly severe.