26/11/2015 - 14:25

Pure Dickensian feast and famine

26/11/2015 - 14:25

Bookmark

Upgrade your subscription to use this feature.

It is one of the most overused quotes of all time, but if you look at the old and the new of Western Australia’s mining industry it is impossible to avoid thinking about the first words in Charles Dickens’ novel, A Tale of Two Cities: “It was the best of times, it was the worst of times”.

SHIFT: A star of early 2014, BC Iron has recently indicated its intention to explore for gold, copper and zinc.

It is one of the most overused quotes of all time, but if you look at the old and the new of Western Australia’s mining industry it is impossible to avoid thinking about the first words in Charles Dickens’ novel, A Tale of Two Cities: “It was the best of times, it was the worst of times”.

BC Iron is the unfortunate case study for the worst of times. Pilbara Minerals is the case study for the best of times.

Last year, before the iron ore market crashed, no-one would have compared the two. Pilbara was a classic penny dreadful trading at 1.3 cents in February 2014. BC was a star, trading at that time at $5.47. Chalk and cheese.

Look again, because the chalk has swapped places with the cheese. BC is limping along at 25 cents, having endured a 95 per cent price collapse. Pilbara has risen to 25 cents, having enjoyed a price rise of 1,800 per cent in just 21 months.

Put another way, BC has plunged; from being a company with a market value of close to $1 billion to one valued at $49 million.

Pilbara has gone from being a company capitalised at less than $10 million to being a company valued at $182 million.

There is a lot more to those numbers than meets the eye, and it has much to do with the fading glory of the iron ore boom and the rise of a category of minerals dubbed ‘technology metals’.

BC’s status in this story of role reversal is that of a company trapped on the wrong side of history, because like a number of other companies, including BHP Billiton, Rio Tinto and Fortescue Metals Group, it believed that Chinese steel production would continue to expand at a rapid rate – a key ingredient in the now-discredited stronger for longer commodities investment thesis.

Sometime in the past few months (better late than never) a light bulb flicked on in the BC office and someone pointed out that iron ore was in chronic oversupply, it (BC) was a relatively small and high cost producer, and perhaps it was time to do something else.

News of that something else surfaced this week at BC’s annual meeting when the company’s managing director, Morgan Ball, said that while iron ore remained a key component of the business, it would start investing in exploration for other minerals on its tenements, with gold and base metals (copper and zinc) the priorities.

With cash reserves of $71.8 million, BC can fund a reasonably big search effort; though that cash balance is itself an interesting insight into how investors have abandoned iron ore stocks, given that BC’s cash in the bank is significantly more than the value of the entire company ($49 million).

If BC is the company enduring the worst of times, Pilbara is enjoying the best of times, and winning strong investor support for its basket of hot tech-metals, including lithium and tantalum.

It’s unknown whether those two commodities will deliver the fortunes expected; lithium as a key component in long life batteries, and tantalum as a key in most modern electronics such as capacitors in mobile phones.

Whatever the long-term outlook, investors love the story, which is why Pilbara was able to successfully raise a fresh $12 million earlier this week from a share issue priced at 23 cents – 17-times the company’s share price of 21 months ago.

Pilbara’s plan is to use the freshly raised cash to advance work on its Pilgangoora lithium-tantalum project in Pilbara, with a pre-feasibility study to be completed in February and a definitive feasibility around the middle of next year.

If all goes well, Pilbara should be in production in 2017, hopefully catching a wave of demand from industrial and household users of long-life, lithium-packed batteries.

A lot can go wrong in a year, as BC’s Mr Ball can confirm, so it would not be wise to assume that Pilbara’s plans to become a world-class producer of tech metals will go smoothly. The WA outback is littered with the remnants of other brave (but failed) mining adventures.

But it’s hard to ignore the fact that BC is very much one of yesterday’s players, having just woken to the reality of a world (especially China) that wants less steel, whereas Pilbara is a company riding a wave of enthusiasm for new metals.

 

Worst of times, best of times.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options