ASX RELEASE
QUARTERLY ACTIVITIES REPORT DECEMBER 2015 QUARTER
ASX RELEASE - 28 JANUARY 2016
DECEMBER 2015 QUARTERLY ACTIVITIES REPORT
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Temporary suspension of DSO operations at the NJV announced in December 2015
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NJV shipments and costs for the quarter impacted by changeover to new haulage contractor
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0.87M wmt of Bonnie Fines shipped from the NJV (BC Iron share 0.70M wmt)
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NJV C1 cash costs of A$54/wmt (FOB) and BC Iron all-in cash costs1 of A$59/wmt (FOB)
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Realised CFR price of US$37/dmt (A$52/dmt) from average CFR 62% Fe price of US$47/dmt
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Iron Valley EBITDA of A$2.5M from shipments of 1.72M wmt
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Initial Buckland optimisation studies completed with outcomes including an expected capital and operating cost reduction to be announced during the March 2016 quarter
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Cash balance of A$42.9M
BC Iron Limited (ASX: BCI) ('BC Iron' or the 'Company') presents shareholders with its quarterly activities report for the period ended 31 December 2015.
In December 2015, BC Iron announced that the Nullagine Joint Venture ('NJV') would temporarily suspend direct shipping ore ('DSO') operations due to low iron ore prices. The decision was made by NJV partners, BC Iron (75%) and Fortescue Metals Group Limited ('Fortescue') (25%), despite material cost reductions being achieved, including a variation of the rail and port tariff which varies with iron ore prices.
During the quarter, the NJV shipped 0.87M wet metric tonnes ('wmt') of Bonnie Fines (BC Iron share: 0.70M wmt). This was two shipments below expectations due primarily to the changeover of road haulage contractor in the quarter and a slower than expected ramp-up by the new contractor. The reduced
shipped tonnes also impacted costs with NJV C1 cash costs of A$54/wmt (FOB) and BC Iron all-in cash costs1of A$59/wmt (FOB).
Following the decision to temporarily suspend DSO operations at the NJV, operational focus has been on achieving the final DSO tonnages for shipment. However, the NJV continues to assess options in relation to its 11.1M wmt stockpile of low grade iron ore. The trial to sell an unprocessed parcel of low grade ore to Fortescue at Christmas Creek under a mine gate sale arrangement is now expected to be completed in February 2016.
Managing Director Morgan Ball said, "The decision to suspend DSO operations at Nullagine was an extremely difficult one but the right one for our shareholders. We will continue to assess alternative operating models for Nullagine, such as the potential low grade operation, and also ensure we are well placed to restart DSO operations if there is a sustained price recovery or if further cost savings are identified."
At Iron Valley, 1.72M wmt was shipped by operating partner Mineral Resources Limited ('MIN'), generating an EBITDA for BC Iron of A$2.5M with negligible prior period adjustments. MIN continues to progress the beneficiation and bulk ore transport system ('BOTS') initiatives that have the potential to improve the economics at Iron Valley for both BC Iron and MIN.
Head Office
Level 1, 15 Rheola Street West Perth WA 6005
1BC Iron all-in cash costs include NJV C1 cash costs plus royalties, marketing, exploration and evaluation expenses and corporate costs.
BC IRON LIMITED
ABN 21 120 646 924
Registered Office
Level 1, 15 Rheola Street West Perth WA 6005 Tel: (08) 6311 3400
Fax: (08) 6311 3449
Web: www.bciron.com.au
ASX Code: BCI
GPO 2811
Listed: 15 December 2006 Perth WA 6001
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QUARTERLY ACTIVITIES REPORT DECEMBER 2015 QUARTER
Improvements to the Buckland Project continued with road haulage optimisation studies and a partial re-pricing of capital and operating costs completed. BC Iron is also finalising preliminary cost estimates for an expanded road and port operation that makes use of the full 20 Mtpa port capacity contemplated in the Company's port lease agreement. Results of these activities will be announced during the March 2016 quarter.
"We are starting to see material improvements from our ongoing assessment work at Buckland," said Mr Ball. "We expect the results of this work will enhance the viability of a standalone development through reduced costs and also indicate that our road and port infrastructure has the potential to be a low capital intensity project with a very competitive operating solution for third parties."
BC Iron entered into a term sheet with the Australian Premium Iron Joint Venture ('API') in relation to co- operating around the mining of the parties' contiguous Bungaroo South and Buckland Hills deposits.
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NULLAGINE JOINT VENTURE ('NJV')
BC Iron Nullagine Pty Ltd, a wholly owned subsidiary of BC Iron, is the operator and manager of the NJV, a 75:25 unincorporated joint venture with Fortescue Metals Group Limited ('Fortescue'). The project is located approximately 140km north of Newman in the East Pilbara region of Western Australia.
Operations
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Dec Quarter 2015 (Mt)
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Sep Quarter 2015 (Mt)
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Variance Q-o-Q (%)
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Dec Quarter 2014 (Mt)
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Variance Y-o-Y (%)
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FY16 YTD (Mt)
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Ore Mined (dry)
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0.97
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1.21
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(19)%
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1.69
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(42)%
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2.18
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Produced (wet)
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1.14
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1.32
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(13)%
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1.42
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(19)%
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2.47
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Hauled (wet)
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0.88
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1.41
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(38)%
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1.43
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(38)%
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2.28
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Railed (wet)
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0.87
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1.44
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(40)%
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1.37
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(36)%
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2.31
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Shipped (wet)
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0.87
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1.40
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(38)%
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1.38
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(37)%
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2.27
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Key operational statistics for the quarter were as follows (Tables 1 and 2): TABLE 1: ORE PRODUCTION, HAULAGE & SHIPPING
TABLE 2: STOCKPILE INVENTORY
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Dec Quarter 2015 (kt wet)
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Sep Quarter 2015 (kt wet)
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ROM Ore1
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110
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231
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Site Product
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235
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36
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RLF Product2
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36
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70
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Port Product
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70
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70
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Notes:
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Low-grade Ore
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11,120
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11,180
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Run of Mine ('ROM')
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Christmas Creek Rail Loadout Facility ('RLF')
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QUARTERLY ACTIVITIES REPORT DECEMBER 2015 QUARTER
In December 2015, BC Iron announced that the NJV would temporarily suspend DSO operations due to low iron ore prices. The NJV is assessing options for its existing low grade stockpile of approximately 11.1M wmt. A trial to haul low grade to Christmas Creek and sell it to Fortescue under a mine gate sale arrangement will be undertaken during the March 2016 quarter. If successful, the NJV may continue to operate and sell part of this low grade stockpile to Fortescue on an ongoing basis.
The NJV mined 0.97M dmt of DSO and produced 1.14M wmt of Bonnie Fines. Waste to ore ratios increased to 1.6:1 for the quarter (September 2015 quarter: 1.0:1) as mining took place in a part of the mine plan that was expected to have higher levels of waste. Following the decision to temporarily suspend DSO operations at the NJV, mining and crushing activities were completed in mid-January 2016 and Viento Contracting Services Pty Ltd is demobilising from site.
Road haulage takes place via a private 60km bitumen haul road from the NJV mine site to Fortescue's Christmas Creek RLF. During the Quarter, the NJV awarded a new road haulage contract to Qube Bulk Pty Ltd ('Qube'), who commenced operations on 1 December 2015. Qube's ramp-up was slower than expected, which impacted the overall December 2015 quarter tonnage of 0.88M wmt hauled. However, road haulage is now running at expected operational rates and haulage of Bonnie Fines is scheduled to be completed in late January 2016. Following this, Qube will commence hauling low grade material to Christmas Creek as part of the mine gate sale trial.
The Pilbara Infrastructure Pty Ltd ('TPI'), a wholly owned subsidiary of Fortescue, provides contract rail haulage and port services to the NJV. In October 2015, the NJV and TPI agreed to a three-month trial (1 November 2015 to 31 January 2016) to vary the rail and port tariff according to iron ore prices, such that it is below the existing tariff at iron ore prices below US$56/dmt CFR and above the existing tariff at prices above US$56/dmt CFR.2
During the quarter, 0.87M wmt was railed from the Christmas Creek RLF to Port Hedland and 0.87M wmt of Bonnie Fines product was shipped on five capesize vessels. This was two shipments below expectations due to the road haulage contractor changeover and slower than expected ramp-up by the new contractor. BC Iron's share of tonnes shipped for the quarter was 0.70M wmt or 80% of the NJV total. BC Iron's share of sales since increasing its NJV interest to 75% in January 2013 is 75%.
Occupational Health & Safety
No lost time injuries were recorded during the quarter. As at 31 December 2015, the rolling 12 month lost time injury frequency rate was 3.9. This is a slight increase compared to 30 September 2015 (3.4), because man-hours reduced in the rolling 12 month period while the number of lost time injuries remained the same.
2 Tariff varies according to FOB prices. CFR price of US$56/dmt assumes a freight rate of US$5.1/wmt. Refer ASX announcement dated 26 October 2015.
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QUARTERLY ACTIVITIES REPORT DECEMBER 2015 QUARTER
Marketing
The iron ore price steadily declined during the quarter, reaching a new low price of US$38.50/dmt in mid- December 2015. Overall, the CFR China 62% Fe price averaged US$47/dmt for the quarter, down from US$55/dmt in the September 2015 quarter.
The average CFR sales price achieved for BC Iron's share of Bonnie Fines was US$37/dmt or A$52/dmt, which includes minor prior period and hedging adjustments.
Operating Costs
NJV C1 cash costs for the December 2015 quarter were approximately A$54/wmt (FOB) and BC Iron all- in cash costs were approximately A$59/wmt (FOB). This is an increase compared to September 2015 quarter costs of A$44/wmt (FOB) and A$52/wmt (FOB) respectively, primarily as a result of reduced sales tonnages due to changeover and ramp-up issues with the new road haulage contractor. This increase was despite further material cost saving initiatives, including the trial variation to rail and port costs.
Resource Development and Exploration
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BC Iron received assays for the previously completed exploration and grade control drilling at Mulla Mulla 2 & 3. Results confirmed the presence of significant iron mineralisation with good continuity and these mesas continue to have potential as satellite developments should DSO operations resume.
Exploration and grade control drilling at Mulla Mulla 1 was completed during the quarter and assays were also received. Results indicate Mulla Mulla 1 is less attractive from a potential development perspective than Mulla Mulla 2 & 3 due to a higher strip ratio.
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FIGURE 1: LOCATION OF MULLA MULLA MESAS
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IRON VALLEY PROJECT
MIN operates the Iron Valley mine under an iron ore sale agreement with BC Iron. It is currently being operated as a DSO, truck haulage operation. During the quarter, MIN shipped 1.72M wmt of Iron Valley ore, generating an EBITDA for BC Iron of A$2.5M with negligible adjustments relating to prior periods.
MIN continues to progress the beneficiation and BOTS initiatives. These initiatives offer potential upside to BC Iron in the future through increased production rates and increased received prices.
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