UBS Investment Research
BC Iron Limited
Crusher circuit hits the quarter
?? Crusher performance impacts sales and costs
Production while flat q/q was only 1.1Mt (4.4Mtpa) versus the target to run at 5Mtpa rate. The Nullagine JV had crusher issues in the quarter and combined with mining in a low grade zone saw lower than expected production and exports. BCI shipped just 1.05Mt for the quarter against UBSe of 1.3Mt. Lower production saw unit costs rise to $51/t vs UBSe of $48/t and SQ 12 costs of $45/t. BCI remains confident of 5Mt for FY 13 stating that both issues are behind them, but this is in essence a downgrade as expectations would have been for more than 5Mt for FY 13.
?? Lower sales impact FY 13E earnings, but lower costs lift future earnings
The lower than expected quarter has seen us downgrade our sales volumes for FY 13 by 5% to 5.1Mt (prev. 5.3Mt). Higher costs in the quarter also contributed to a 6% drop in FY 13 earnings to $65m (53.8cps). Looking beyond FY 13, we maintain our forecast for 6Mtpa from the JV (BCI’s share 4.5Mtpa), but have lowered our costs to $45/t (2012 real) from FY 14. FY 14/15 earnings are up 10% and 13%, respectively, while NPV increases 18% to $3.62ps.
?? Strong cash position bodes well for increased shareholder returns
Following the deal to buy an additional 25% of the Nullagine JV, BCI finds itself with an estimated net debt of $78 at 31 Dec 12. However, with minimal capital outlay going forward and an estimated cash margin of $30/t, we estimate BCI could be net cash by end FY 13. This puts BCI in a strong position to return cash to shareholders, either through a higher payout ratio (currently 30%) or a buyback
?? Valuation: $3.62 (DCF, 10% d.r)
We have raised our price target to $3.60ps (prev. $3.00) in line with our NPV.
**** just goes to show you what geniuses analysts are. they just did a capital raising, but this guy is suggesting they do a buyback. absolute geniuses!
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