A protracted and ultimately unsuccessful take-over bid for the company has given burgeoning Pilbara-focused iron ore producer BC Iron a steely resolve.
In January 2011, BC Iron announced Hong Kong-listed Regent Pacific was offering to acquire all existing BC Iron shares not already owned by it for cash consideration of $3.30 per BC Iron share.
At that time BC Iron directors recommended the offer, in the absence of a superior proposal and subject to the opinion of an Independent Expert, concluding that it was in the best interests of its shareholders.
However, it was noted that BC Iron shareholders should have the opportunity to assess the merits of the offer once all relevant information had been compiled.
BC Iron subsequently commissioned KPMG to prepare an Independent Expert report in relation to the offer. Unfortunately, intervening events resulted in the Independent Expert report being delayed until Regent Pacific reinstated its finance for the offer in late April 2011.
KPMG were then instructed to refresh and finalise the report, in which it formed the opinion that, after having regard to both valuation and other qualitative matters, the Scheme was neither fair nor reasonable and therefore not in the best interests of BC Iron shareholders.
The Independent Expert report was prepared specifically in relation to the offer for inclusion in a Scheme Booklet but as the offer was terminated, the report was not subject to normal regulatory review and the Scheme Booklet was no longer required to be sent to shareholders.
KPMG’s assessed value range, including a premium for control, for BC Iron in its original report was $3.80 to $4.13 per share, as compared to Regent Pacific’s offer of $3.30, both of which are far more positive than the $2.85 vicinity the share price currently hovers around.
“There is a hang-over on the share price as investors are still sitting back waiting to see what the parties involved may do next,” BC Iron managing director Mike Young told The Inside Story.
“A valuation came out recently putting us at $3.80 to $4.14, at the moment we are sitting at the high $2.80 mark.
“We did everything right. We had an obligation to take the offer to our shareholders, which we did.
“If another reasonable offer came in we would probably do the same thing because at the end of the day – you don’t have to say yes to an offer but you can’t say no.”
As recent as the take-over was it may as well now be ancient history as the company’s focus is now well and truly on getting its 50:50 Nullagine iron ore project Joint Venture with Fortescue Metals Group up to speed.
Mine gate production leading up to the end of May 2011 at Nullagine has been robust with 330,000 tonnes of Direct Shipping Ore stockpiled.
Mining production at the project is meeting all desired tonnes and grades with the Wirtgen surface miners performing beyond expected rates and with lower than expected wear rates on the cutting tools.
The crushing and screening circuit at Nullagine has now been fully commissioned and is also performing at, or above, design specification.
The only thing that has managed to rain on the Nullagine parade of late is rain itself.
Unseasonable rain that is, and plenty of it. Enough in fact, to delay the completion of a 55 kilometre private haul road currently under construction between the Outcamp Mine and Fortescue’s Christmas Creek operation where the ore is loaded onto trains for haulage to Port Hedland for export.
“We have had to slightly reduce our tonnage predictions coming in the next financial quarter,” Young said.
“We are still constructing the haul road but we had to take that into consideration along with the rain delays.
“Because of all that we have decided to down grade our forecasts.”
The haul road construction timetable has already passed what the company originally planned for.
“The road they are building is fabulous – it really is a nice road – but we are now looking at ways of hauling while it is still under construction to get the most out of it now while we can,” Young explained.
From January to April this year, haulage from Nullagine to Christmas Creek was restricted to public roads resulting in daily haulage of around 3,000 tonnes, over a distance of 120km.
During May 2011, construction of the haul road had been completed to the point to allow ‘haulage under construction’ which halved the distance to 55km.
This shortened distance and the step to concessional loading, below their carrying capacity of 110t per truck, allowed rates of up to 5,000t per day to be achieved.
As the road nears completion, haulage rates will increase progressively but due to construction logistics, rates will vary on a daily basis.
Once the road is complete, currently planned for August, the trucking fleet, including use of the 360 tonne PowerTrans Pit Haulers, will have unencumbered access to the road.
This should allow for daily haulage rates of over 10,000t of ore per day to be achieved.
“Then over two million by December, after that we are aiming at somewhere between 3.5 million to 3.7 million tonnes by June 30 2012.”
The system of moving its ore through the FMG mining and transport hub at Christmas Creek is working well for BC Iron with some 210,000 tonnes already having been exported.
The full 2011 financial year guidance is for a total of approximately 300,000 tonnes to be shipped.
Fortescue continues to provide significant support in allowing BC Iron to export partial Cape size shipments during the ramp up phase, continually exceeding their obligations under the Rail and Port agreement.
“FMG are continuing to exceed their obligations under the agreement. They go well above what they have to do,” Young said.
“They are a great Joint Venture partner to work with. They fulfil all their obligations at the same time as helping us out as much as they can.
“The product is getting sold and the marketing guys at FMG are doing the best they can to ensure we get top dollar for it.
“And the product is behaving really well in all the steel mill smelters. It really is now just a matter of us getting the haul road finished.”
“It is like the final piece in a large jigsaw puzzle.”
Take-over bids and haul road delays can be part of the package when constructing a mine.
The most important part of that package however, is the project itself and how it behaves away from external distractions.
BC Iron may have dealt with aggressive suitors and suffered delays to the completion of its vital haul road, yet the performance of its mining fleet and the performance at the rail and port services have exceeded expectations.
BC Iron is fully expectant of the total Nullagine mining package to take the next significant step, which will result in a change in export quantities upon completion of the haul road during the September quarter.
BC Iron Limited (ASX:BCI)
…The Short Story
HEAD OFFICE
Level 1
15 Rheola Street
West Perth WA 6005
Ph: +61 8 6311 3400
Fax: +61 8 6311 3449
Email: info@bciron.com.au
Web: www.bciron.com.au
DIRECTORS
Tony Kiernan, Mike Young, Morgan Ball, Terry Ransted, Steven Chadwick, Glenn Baldwin
MAJOR SHAREHOLDERS
Consolidated Minerals
Regent Pacific Group
