AMID the increasingly tangled stand-off between Fortescue Metals Group and a clutch of iron ore juniors hoping to access the company's Pilbara iron ore infrastructure, BC Iron managing director Morgan Ball can offer some insight into the results that can come from a slightly less combative approach.
The likes of Brockman Mining and Flinders Mines have both made moves to gain access to Fortescue's rail and port network through clauses under the state agreement governing the infrastructure. Fortescue has countered by offering tariff rates that appear to sit well beyond the levels the juniors are prepared to stomach.
In contrast, BC Iron is into the third year of production from its Nullagine project based around accessing Fortescue's port and rail, having brought Fortescue on board early on as a joint venture partner.
The deal involved BC Iron giving up a 50 per cent interest in the project, a deal that was widely criticised at the time but which put the company on a path to production that has not been matched by the majority of its peers.
Watching the current manoeuvrings between Fortescue and Brockman, Mr Ball is in no doubt that BC Iron's past few years would have looked very different if it had chosen a similar path. "It's fair to say that the relationship would not be as robust and strong if we'd gone down that route," he said.
"We may well see Fortescue and Brockman enter into a commercial relationship on the back of this, and maybe that's the trigger for them, but it would be a different relationship. Whereas we've got a collegiate approach because they're partners in the project.
"I know which one I'd prefer."
Mr Ball, who took over from BC Iron's founding managing director Mike Young earlier this year, says the original deal with Fortescue was a crucial turning point for the company. With other iron ore miners who went in alone now struggling to find financing for their development projects, the contrast is clear.
"You only need to look at all the other juniors out there to see that that's been proven to be a masterstroke," he said. "We're making great cashflow, and have been now for three years, on the back of doing that deal."
The iron ore price meltdown of late last year, and its impact on Fortescue's balance sheet at that time, helped BC Iron and Fortescue consummate a deal that saw the former buy back a 25 per cent interest in Nullagine.
The share price performance of BC Iron since then suggests a market that is very fond of that deal. While the share price of iron ore miners has been hit hard in recent months by another slip in the iron ore price, BC Iron has comfortably outperformed its Australian peers.
BC Iron's peers are down between 6 and 76 per cent so far this year, whereas BC Iron has generated total shareholder returns of 28 per cent.
Mr Ball says the Fortescue relationship remains as strong as ever even since they reduced their stake in Nullagine. "Never have I seen anything but goodwill from Fortescue towards us, they've taken real pride in what we've achieved and their ability to contribute to that," Mr Ball said.
Despite the positive relationship, Mr Ball is interested to see what happens in the region if and when Fortescue completes a sale of a minority stake in its infrastructure arm, called TPI.
"I'd like to think if TPI is sold, say, to a sovereign wealth fund or whoever it happened to be, they would have a view towards getting third parties on the rail to increase their returns," he said.
"If there's another owner in that asset pushing that barrow (for third-party access), I think there's more opportunities there, absolutely, and I'd like to think that we're well placed to access them."
The volatility in iron ore prices over the past year has not been good for the iron ore sector. While BC Iron doesn't have to worry about securing funding and continues to enjoy healthy margins, Mr Ball admits that the downwards trajectory of the iron ore price has caused some anxiety.
"I watch (the iron ore price) and I start to feel a bit green around the gills when it moves towards $100 a tonne, but I also believe in the China story and urbanisation," he said.
"A lot of Chinese domestic producers are the marginal producers, so when iron ore does fall for certain periods of time, they will be the ones who get squeezed out. Then the price will start to creep back up."
That thesis was tested last year, when the price plunged from highs of $180 a tonne to less than $90 a tonne. While the price went lower than many thought, the fall also proved to be temporary.
Gloom has now been creeping back into the sector as prices once again slide, but Mr Ball is comfortable with BC Iron's position.
The downturn in the sector is finally freeing up capacity in the workforce that hasn't been seen for some time. "We've been looking to hire a couple of engineers for over a year now and just couldn't find anyone previously. Now in the last three months we've seen more CVs appear that look more like the people we were looking for," he said.
With BC Iron facing none of the financing or construction risk hindering so many of its peers, the main challenge facing Mr Ball is proving that the company has real long-term growth options.
An acquisition is needed to really shore up the longer-term future of the company, but Mr Ball stresses that he will only move on another opportunity if the value is clear.
"If the right deal isn't there, for 10years we'll make good money (from Nullagine), give it all back to shareholders, and we'll pack up and go home," he said.
BCI Price at posting:
$3.16 Sentiment: Hold Disclosure: Held
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