Many miners are battening down the hatches as iron ore prices fall again BC Iron Ltd. BCI.AU +1.29%’s new managing director, however, is taking a different approach.
Morgan Ball says the Perth-based company should aim to double in value and look for new projects that can complement its majority owned Nullagine mine in the Pilbara region, which will soon be able to produce 6 million tons of iron ore for export annually.
“I’d love to get us to a billion dollar company as our next growth horizon and that will involve risk, because it will include M&A,” said Mr. Ball, who is due to replace long-term BC Iron Managing Director Mike Young next month.
BC Iron has a market value currently of 384 million Australian dollars (US$399m), ranking it behind other Western Australian mid-tier iron ore miners Mount Gibson Iron Ltd. MGX.AU +1.08% and Atlas Iron Ltd. AGO.AU -0.99%, worth A$507 million and A$923 million respectively. All three have been marked down by investors lately on concerns about subdued commodity demand.
Iron ore prices have fallen nearly 15% to US$135.90 a ton in little more than a month, reflecting an easing in demand from Asian steel mills. Those consumers had taken advantage of prices hitting a three-year low of $86.70 a ton in September to replenish iron ore stocks over the final few months of 2012, a sudden spurt in consumption that contributed to an 80% rise in prices to a peak in February.
While several miners – notably Fortescue Metals Group Ltd. FMG.AU +0.56%– have restarted projects put on ice late last year, others like Atlas and Mount Gibson are continuing to take a more conservative approach to spending. Exploration is out of favor, although expansions of existing mines are moving forward as mid-cap miners seek to generate greater cash flow.
In his role as finance director, Mr. Ball took the lead on BC Iron’s recent A$190 million purchase of an additional 25% stake in Nullagine from Fortescue, boosting its total interest to 75% and giving it access to more output.
The Nullagine mine started production in 2011 and its ore, which is railed, shipped and marketed by Fortescue, is expected to last another seven years. There’s little likelihood of extending that life significantly through exploration, Mr. Ball said.
BC Iron will use cash flow to pay dividends and trim its US$130 million debt facility provided by Australia and New Zealand Banking Group ANZ.AU -1.00%and Commonwealth Bank of Australia CBA.AU -1.54%for the Nullagine deal, Mr. Ball said.
But the company needs to begin examining M&A alongside these priorities, he said.
“In the medium term, we’ll look to really test out the alternatives in our own back yard. We’ll tend to focus on the Pilbara and I believe there are still opportunities there in relation to infrastructure solutions,” he said.
Fortescue Metals is looking to sell a minority stake in its Pilbara rail and port assets by mid-year, which may create opportunities for several smaller miners and explorers looking for transport routes to Port Hedland.
Outside of the Fortescue process, Atlas Iron Ltd. and Brockman Mining are studying whether a new rail line to Port Hedland is feasible, while billionaire Gina Rinehart’s Roy Hill venture hopes to build a new railway for its US$10 billion project.
Separately, junior company Iron Ore Holdings Ltd. IOH.AU +0.53%has touted a trans-shipping facility for its Buckland project.
“All of those people are rightly focusing on their own back yard at the moment, but as time goes on I think there will be opportunities there,” he said.
Initially the company will look at assets in-house, Mr. Ball said. But it has hired investment banks in the past, including Perth-based advisory Azure Capital during the recent Nullagine deal.
BC Iron had A$58 million in cash at Dec. 31 and a quarterly update due mid-to-late April is expected to show that going up, Mr. Ball said.
If deals don’t stack up in the Pilbara, BC Iron will eventually look overseas for growth, probably focusing on Brazil, he said.
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