«ASX RELEASE - 22 OCTOBER 2012 HIGHLIGHTS BC Iron (ASX: BCI) achieved a number of significant milestones during the quarter including the release of a ...»
QUARTERLY ACTIVITIES REPORT
SEPTEMBER QUARTER 2012
ASX RELEASE - 22 OCTOBER 2012
BC Iron (ASX: BCI) achieved a number of significant milestones during the quarter including the
release of a strong FY12 financial result with NPAT of $51 million and the declaration of a maiden fully
franked annual dividend of 15 cents per share. Mining and exports continue on budget and, during the quarter, total Nullagine Joint Venture exports passed 5 million tonnes since our first iron ore exports in February 2011. BC Iron also entered into a strategic alliance with Cleveland Mining Limited to acquire and develop new iron ore projects in Brazil.
CORPORATEEBITDA of $68.8M for FY12 NPAT of $50.6M for FY12 Operating cashflow of $88.9M for FY12 Maiden fully franked annual dividend of $0.15 per share and a payout ratio of 31% Strategic alliance formed with Cleveland Mining Company Ltd (ASX: CDG) to acquire and codevelop new iron ore projects in Brazil A 5% cornerstone equity investment made in Cleveland Mining Company Ltd Cash on hand of $81M on 30 September 2012
OPERATIONSNullagine Iron Ore Joint Venture (“NJV”)
1.1Mt mined for the quarter
1.2M wmt exported for the quarter To date, over 5M wmt exported from the project since February 2011 Final upgrade to crushing plant completed Average sales price realised for the quarter of ~US$95/dmt CFR C1 cash operating costs for quarter of ~$45 per tonne
EXPLORATION & RESOURCE DEVELOPMENTOre Reserves of 41Mt grading 57.1% Fe (64.9% CaFe) – a net increase of 10Mt for FY12 Updated CID Mineral Resource of 108.7Mt grading 54.1% Fe (61.7% CaFe) Mining study underway to investigate extension of NJV mine life beyond 9 years BC IRON LIMITED Registered Office Head Office ABN 21 120 646 924 Level 1, 15 Rheola Street Level 1, 15 Rheola Street West Perth WA 6005 West Perth WA 6005 ASX Code: BCI Tel: (08) 6311 3400 Fax: (08) 6311 3449 GPO 2811 Listed: 15 December 2006 Web: www.bciron.com.au Perth WA 6001 Page 1 of 13
QUARTERLY ACTIVITIES REPORTSEPTEMBER QUARTER 2012
1. OPERATIONS Summary Results - Nullagine Joint Venture (BC Iron - 50%, Fortescue Metals Group - 50%) BC Iron Nullagine Pty Ltd, a wholly owned subsidiary of BC Iron, is the operator and manager of the Nullagine Iron Ore Joint Venture, a 50:50 JV with Fortescue Metals Group Limited. The project is located approximately 140km north of Newman in the East Pilbara region of Western Australia.
Production and shipments for the September quarter were as follows (Tables 1 and 2):
TABLE 1: ORE PRODUCTION, HAULAGE & SHIPPING
Notes: 1. Run of Mine (“ROM”).
2. “MOC Product” – material treated and stockpiled for haulage at Mine Operations Centre.
3. “RLF Product” – material ready for rail haul at the Rail Load out Facility at Christmas Creek.
Mining, Crushing and Screening The second stage upgrade to the crushing plant was completed as planned during July 2012. This will provide additional “sprint” capacity of approximately 1Mtpa on top of the 5Mtpa already achieved, matching the capacities in the mining and haulage areas.
The upgrade involved shutting down the crusher for three weeks in July 2012, with the subsequent impact to production reflected in the mining and crushing figures for the quarter in Table 1 above. This expected dip in the quarterly figures has not impacted planned 5Mt production for FY13.
BC Iron’s mining, crushing and screening rates for the quarter were:
ROM includes both Direct Shipping Ore (“DSO”) and Low Grade ore (“LG”) that is blended to achieve the required specification export grade. The remaining LG ore is being stockpiled for future blending or use following the finalisation of ongoing beneficiation studies.
During the quarter, an above average volume of LG ore was mined and stockpiled as mining at Outcamp Pit 1 passed through an area of lower grade ore. This ore was encountered before Warrigal
Pit 3 was fully commissioned thereby contributing to the DSO produced reflecting slightly lower grades.
Warrigal Pit 3 is now fully commissioned and mine scheduling is on track to produce normal specifications (57% Fe) and tonnages in the coming quarter.
Ore Truck Haulage Ore haulage takes place via a private 58km bitumen haul road between the NJV mine site and Fortescue’s Christmas Creek Rail Loadout Facility (“RLF”) where the ore is loaded onto trains for rail haulage to port (Figure 1).
During Q2 FY13, BC Iron’s haulage contractor, Toll Mining Services (“TMS”), will introduce two 160t payload “Big Foot” road trains to supplement the Pit Hauler fleet. These will replace the smaller 110t payload triple road trains which have been running since start-up.
Haulage activity for the three months to September totalled 1,227,292t.
Rail Haulage and Port Services Fortescue provides contract rail haulage and port services to the NJV from the Christmas Creek RLF to the Herb Elliott Port in Port Hedland.
During the quarter, the NJV railed a total of 1,262,760t of Bonnie Fines.
Shipping During the quarter, the NJV shipped 1,237,446 wet metric tonnes (“wmt”) of Bonnie Fines product on seven cape size vessels. In total, the NJV has exported 5,041,302 wmt of ore since the commencement of operations.
Operating Costs Free on Board (“FOB”) cash operating costs (“C1 costs”) for the September quarter were in line with budget at ~$45 per tonne. This is a particularly pleasing result given the slightly lower tonnages produced in the quarter due to the scheduled crusher upgrade and the increased waste/low grade mining conducted. C1 cash operating costs exclude State Government royalties, marketing and corporate costs.
Total Net Operating Cashflows for the quarter reported in the Company’s accompanying Appendix 5B
were affected as follows:
Receipts from the last ship to sail for the quarter were not received until early October;
State Royalties paid during the quarter reflected the higher than nameplate volumes exported in the last quarter of FY12;
Marketing fees were paid to Fortescue this quarter for services provided in previous periods;
and Annual payment of staff incentives were made this quarter in relation to the year ended 30 June 2012.
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QUARTERLY ACTIVITIES REPORTSEPTEMBER QUARTER 2012 C1 costs for the NJV are expected to be in the range of $45 to $50 per tonne over the Life of Mine (“LOM”) and are forecast to be at the lower end of this LOM cost range during FY13. The variation of the LOM annual costs is affected by each mine’s location and haulage distance to the ROM as well as the waste to ore ratio.
The NJV has also budgeted ~$25 million (BC Iron share $12.5M) in exploration and development expenditure during FY13. This figure is higher than the ongoing expected average for annual sustaining capital over the LOM.
Development Construction of a 5km haul road, which accesses the Warrigal Deposits, was completed during the quarter. Other construction work during the quarter included Village improvements, expansion of the Mine Operations Centre and upgrading three major floodways along the main haul road to Christmas Creek.
The Company has also commenced fencing the edges of the haul road to reduce the incidents of animal strikes, resulting in improved safety to our personnel and reduced loss of animal life.
Marketing The Platts average Cost and Freight 62 price (“CFR62” - 62% Fe fines delivered into China) for the September quarter was US$113 per dry metric tonne (“dmt”). The average CFR sales price achieved by the Company for its Bonnie Fines product for the quarter was US$95 per dmt.
The difference between the CFR62 price and the Bonnie Fines realised price is due to price adjustments for iron units and application of the discount agreed with the NJV’s primary offtake partner, Henghou Industries (Hong Kong) Limited for its shipments.
Fortescue provides marketing services to the JV, lending strong support in logistics and marketing.
The Bonnie Fines product remains in high demand with increased buying interest in recent months.
The pisolite sinter blend improves productivity at the steel mill as it has low impurities, low ultra-fines, low moisture and high calcined iron grade.
Customer ratings of the Bonnie Fines product (Table 3) highlight the importance of low Sulphur and Phosphorous content. Figure 2 demonstrates that the NJV DSO product contains one of the lowest levels of Phosphorous in the world.
Iron Ore Market The period from 2003 to 2011 saw unprecedented growth in the Chinese economy leading to a rapidly rising demand for steel and therefore coal and iron ore. In response, these commodity prices rose on the back of a supply-demand imbalance leading to record prices and rapid growth in the iron ore industry.
Since 2012 and going forward, this supply-side growth has caught up with the demand in China and therefore the price is now likely to be determined by the industry’s marginal cost of production.
Volatility of the iron ore prices in recent months can be attributed largely to sentiment and trading methodology. However, recent history shows that the iron ore price typically undergoes a correction back to long term, sustainable levels based on marginal costs relatively quickly.
Following the end of the quarter, prices have recovered and the Company believes that recent volatility in iron ore prices will moderate once the Chinese Government transition is complete. It is clear that the Chinese Government is committed to slower, sustainable growth. Therefore, prices will settle in a range consistent with this measured demand growth as Chinese urbanisation continues.
In this environment, BC Iron has maintained its cash operating costs (C1) on budget affording protection against short term price volatility on the one hand, and long term prices on the other.
2. EXPLORATION AND RESOURCE DEVELOPMENTNullagine Joint Venture (BC Iron - 50%, Fortescue Metals Group - 50%) In August 2012, BC Iron released the updated Mineral Resource and Ore Reserve Estimates as of 30
June 2012; see Tables 1 to 4 below in the Qualifying Statements, and as follows:
Ore Reserves of 41Mt grading 57.1% Fe (64.9% CaFe) – a net increase of 10Mt for FY12;
DSO Mineral Resource Estimate of 55Mt grading 57.0% Fe (64.7% CaFe); and CID Mineral Resource of 108.7Mt grading 54.1% Fe (61.7% CaFe).
In the process of updating resource estimates, both the resources and corresponding reserves were upgraded to Measured and Proved respectively. The upgraded classifications are a result of the use of grade control resource models in the resources and reserves. Ore Reserves are determined from mine planning studies using the upgraded resource models.
The Company’s primary focus is to expand the resource base to extend the Nullagine mine life by a further three to five years. This “Project Inventory” study, due for completion during Q3 FY13, will establish the amount of total mineable DSO and Beneficiate Before Shipping Ore (“BBSO”) available for economic extraction from the NJV Project. During the quarter, consultants were engaged and sample collection began to initiate the required test work.
3. SUSTAINABILITY Occupational Health & Safety No Lost Time Injuries (“LTIs”) were reported during the quarter.
The BC Iron Safety Strategic Plan was launched in August 2012 with communication sessions held in the Perth office and onsite. The Safety Strategic Plan sets the direction and priorities for continuous improvement in safety performance across the business in 2012/13.
A key focus during the quarter has been the rollout of a safety perception survey, the first of many activities driven by the Safety Strategic Plan. The aim of the survey is to gain an insight into the safety culture of the workforce. Analysis of the results will be undertaken in October 2012 and presented to all participants.
Significant activity was undertaken this quarter to strengthen emergency response capabilities, resulting in the identification of 28 on-site personnel into the emergency response team, and the commencement of certificated and skills maintenance training programs.
The Company maintains best practice management of flora and fauna within the project area. During the quarter, BC Iron submitted its second Annual Compliance Report to the Commonwealth Department of Sustainability, Environment, Water, Population and Communities. This was supported by an independently submitted external Compliance Audit. BC Iron received a commendation from the Commonwealth department on the quality of the report.
Other significant activities during the quarter included the renewal of the site’s Groundwater Extraction Licence and the opening of a new landfill facility endorsed by the Department of Environment and Conservation.
Native Title and Heritage Considerable effort continues on the completion of site avoidance surveys across various prospects within the Nullagine project area. These activities are largely coordinated around land access requirements for hydrological and resource drilling as well as mining infrastructure development.
4. CORPORATE Year End Results
During the quarter, BC Iron announced annual results for the year ended 30 June 2012, including:
Maiden Dividend The Company declared its intention to pay a fully franked annual dividend of 15 cents per share or approximately $15.6 million. This equated to a dividend payout ratio of ~31% for FY12 and was paid to shareholders around 2 October 2012.