BC IRON managing director Mike Young has defended the Australian iron ore industry's record for disclosure of production costs, warning that it is up to investors to ensure they sufficiently understand the additional charges that can squeeze a miner's margins. Speaking to The Australian amid ongoing investor concern about the way miners report their production costs, Mr Young said iron ore miners were meeting all relevant accounting standards in their reporting of so-called C1 cash costs.
"It's not like you deliberately try to hide stuff, but at some point you've got to make an assumption that the investors have some degree of knowledge about what's going on," Mr Young said.
He said BC released sufficient information for well-informed investors to evaluate the company, based on their own pricing forecasts.
"Someone who is a small investor sitting on the central coast of NSW may not be sophisticated enough to do that. But they have to buy shares knowing that's the case, and it's not my job to give them all that information about things we can't control," Mr Young said.
C1 production costs commonly reported in the mining industry typically exclude significant charges - such as royalties, native title payments, marketing costs, exploration and development - that can materially affect a company's profitability.
The iron ore industry is also further obscured by the way the commodity is priced, with factors such as freight, iron ore content and moisture often ensuring miners receive a price well below the widely quoted spot-market indexes.
Many Australian iron ore miners - who typically offer production cost guidance of about $40-$50 a tonne - found themselves unprofitable in August and September when major index iron ore prices slumped to below $US90 a tonne.
Mr Young also noted that investors had full insight into a company's true profitability every six months, when miners released their half-year and full-year accounts.
"People do more research when buying a house or a car than they do when buying shares. Really, if you can't read a balance sheet, should you be buying shares?" Mr Young asked. He also noted that any miner that deviated from accepted accounting practices faced legal action.
Debate about the mining industry's approach to reporting costs has been raging since The Australian revealed that prominent BlackRock fund manager Catherine Raw and AngloGold Ashanti chief executive Mark Cutifani had both been critical of mining companies' disclosure.
John Robertson, from EIM Capital Managers, said his fund relied on its own in-house cost calculations.
"We bring it all back to a comparable basis so we can look at companies and do valuations on a consistent basis across companies," he said. "If you're an individual investor you don't have that luxury."
Tim Schroeders from Pengana Capital said more comprehensive disclosures about the true cost of production could help miners attract capital.
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Gidday haemitite,
I like Mike alot so my opinion will be biased.
I obviously cannot speak on Mike's behalf but do tend to agree with him. It doesn't take much to find out all of the operating costs associated with BCI. A recent post on the BCI Hot Copper forum even showed these costs:
- Bonnie Fines 57% or 0.92 of CFR62 - Shipping $8t - Native title 1.3% - WA royalties for fine ore, 6.5% - Marketing (FMG) 3.2% - Opex ~ $45t. MRRT ~ BCI has publically stated that they will most likely have a zero MRRT obligation for FY13. -CFR62, average USD$115. - Admin, Amort & Depreciation, $1.5t
This information was gathered from BCI presentations and are as up to date as they can be. It wasn't a hard task.
I personally network as much as I can. The BCI HC forum is one way of networking so whoever reads this post is networking in their own way. Some of us network more than others.
Speaking for myself, I tend to think that if you can't be bothered reading a silly post on a stock market forum -- but you'd rather spend your time 'chilling out', well you're obviously going to be less informed than some! I've always found it intriguing that many can spend hundreds of hours working for their investment dollar, but once that dollar is invested, some then spend close to zilch time tracking that investment. That makes absolutely no sense to me.
I love to network, it's not a chore for me so it's probably hard for me to understand the mind set of those who don't and probably explains my lack of sympathy/empathy.
Only my opinion buddy :)
BCI Price at posting:
$3.45 Sentiment: Buy Disclosure: Held
(20min delay)