THE BOURSE WHISPERER: BCI Minerals (ASX: BCI) is anticipating a healthy windfall from the recent rise in global iron ore prices.
BCI Minerals said it expects increased EBITDA from Iron Valley for the June 2019 quarter compared to the levels reported for the first three quarters of the current financial year (FY19).
Iron Valley is a mine in the Central Pilbara region that is operated by Mineral Resources (ASX: MIN) and has Ore Reserves of 95 million tonnes at 58.4 per cent iron (as at 30 June 2018).
BCI receives a quarterly royalty from MIN and the company’s EBITDA from Iron Valley has ranged between $5.6 million (FY18) and $18.3 million (FY17) since operations commenced in 2014.
BCI previously reported its EBITDA from Iron Valley for the first nine months of FY19 was $6 million from 5.5 million tonnes shipped and that it expects Iron Valley EBITDA for FY19 of between $6 million and $12 million.
However, iron ore prices have enjoyed a large spike during the last six months due to global supply issues and ongoing strong steel demand and have been particularly strong in the June 2019 quarter to date, with the CFR 62 per cent Fe iron ore price averaging US$96 per dry metric tonne (dmt) in April and May and the spot price currently at US$105/dmt.
This compares to an average of US$74/dmt for the first nine months of FY19.
Discounts for 58 per cent Fe iron ore products have also reduced materially and are at the lowest level in more than three years, leading to a reduction in discounts for Iron Valley product.
Although most of the recent Iron Valley shipments have been iron ore fines, which has a lower price than lump, overall pricing for Iron Valley product has been strong, particularly in April and May 2019.
BCI now expects FY19 EBITDA from Iron Valley to be between $11 million and $12 million, which is at the upper limit of the company’s previous estimate.
“If the iron ore market and MIN production levels remain at current levels, FY20 is expected to be another positive year for BCI’s Iron Valley royalty,” BCI Minerals said in its ASX announcement.
“Potential further upside exists if the proportion of lump shipped by MIN returns to long range average levels.”
BCI Minerals currently boasts a cash position of $34.8 million (as at 31 May 2019).
Combined with stronger royalty earnings from Iron Valley, the company believes it is in good stead to continue advancing its Tier 1 development project, the Mardie salt & potash project, located on the West Pilbara coast in the centre of Australia’s key salt production region.
The Mardie project is expected to produce high-purity salt (typically 99.7 per cent NaCl) and sulphate of potash (SOP) via solar evaporation of seawater.
“Using an inexhaustible resource and a production process driven mainly by natural solar and wind energy, Mardie is a sustainable opportunity to supply the salt and potash growth markets in Asia over many decades,” BCI Minerals explained.
“The long-term demand outlook for both salt and SOP is positive.
“High purity salt produced at Mardie will be used in chemical and industrial processes that create thousands of everyday products.
“Demand in this market segment, particularly in Asia, is expected to grow strongly over the next decade and result in a supply deficit.”