This is what I'm going by. I think I have this right. Just a recap on what we already know.
Asian mills concentrate on the material that enters the furnace. For lump ore it's a Fe (Iron) feed, for fine ore it's CaFe (Calcined Iron) feed. With Hematite Iron ore (Fe2O3) there is a requirement of at least 62% Iron. Pure Hematite by weight is 70% Iron and 30% Oxygen. So in other words mills allow 8% in impurities or Deleterious elements (DEs).
Briefly, mills can lower this 62% Fe benchmark but prefer not to as the furnaces slow in production the more DEs that have to be removed. The mill will tap the heavier molten Iron from the bottom of the vat whilst the lighter impurities are skimmed off the top. Obviously the higher the percentage of DEs that pass through the furnace, the higher the energy cost and the less Iron that can be collected percentage wise ... anyway,
As we all know fines need to be converted into lump ore to be suitable as a furnace feed. Hot gases need to enter the material to allow the DEs to separate from the Iron. Only lump ore can do this. A big benefit for fine ore is when the material is converted from fine ore to lump, the carbonates and water are also burnt off giving potentially a big Fe percentage uplift. This is the main reason Aussie Hematite fine ore is viable for Asian mills, especially compared to Magnetite ore. Lump ore doesn't have the luxury of losing it's carbonates and water prior to entering the furnace. Fortunately Bonnie fines contain high amounts of these elements (C, CO2 and H2O) which inturn means that Bonnie fines cut-off grade can be lower than our fine ore peers. Infact at 57% Fe (pre-sintered), BCI's furnace feed post sintering is 65% CaFe with it's Loss On Ignition (LOI) figure of 12.3%, 3% above the minimum requirement of 62% Fe.
Asian mills don't have a Calcined Iron index. There's only three Iron indexes. These being:
- 62%Fe - 58%Fe - 52%fe
So when we calculate the price for Bonnie fines we are paid by each Dry Metric Tonne Unit (DMTU) to 62% Fe. For 57% Fe (Bonnie fines) that's 0.92 (57/62) to CFR62. However Asian mills can also pay a premium or a penalty to the DMTU since no CaFe index exists and BCI is being unfairly penalized, because BCI has a high LOI and low DEs. For fine ore producers in Australia it is gauged to Yandicoogina fine ore which is a 58% Fe product. They call this premium or penalty the Value In Use (VIU) based on Yandi@100 CFR58. BCI's Bonnie fines VIU is 106.
With that in mind, I am confident that BCI can potentially sell below the blended 57% Fe grade and still receive a competitive price.
Probably the biggest advantage for the big guys is that they have no big ongoing costs regarding infrastructure in terms of these have been paid for. Where as BCI is committed to pay FMG a fee for each tonne of ore exported. This added cost in comparison to the likes of RIO will be a bigger issue regarding how low in grade we can sell ore and still be competitive. Also, the long term price of Iron ore is based on $95 a tonne. That's the figure I believe BCI will be making it's decision on what's viable or not, even if the current price is around $140t. Since BCI will most probably be selling most of this lower grade ore in the long term and BCI needs a long term price.
The BIG unknown is the dry screening of this lower grade ore.
What is the cost per tonne of dry screening?
What is the upgrade in Fe percentage by dry screening?
If BCI can convert 55% Fe ore to 57%+ Fe successfully for a low cost. In my opinion THAT'S potentially the real kicker for us shareholders, we wait and hope.
BCI Price at posting:
$3.30 Sentiment: None Disclosure: Held
(20min delay)