Please bear in mind, I have no expertise in valuing mining royalty businesses. BCI minerals came across my radar when I saw Ryder Capital had a significant stake. My natural curiousity got the better of me and I decided to dip my toes into the mining sector. Most of you have more knowledge than me, but I will try to understand the nuances of BCI Minerals. 

BCI Minerals Limited (ASX:BCI) is an Australian-based company that is developing a salt and potash business supported by iron ore royalty earnings. So they have 2 businesses: 

• Iron ore Royalty (referred to as "Iron Valley") where BCI receives quarterly royalty earnings from an iron ore mine located in the Central Pilbara region of Western Australia operated by Mineral Resources Limited (ASX:MIN). 
  • Last I checked Mineral resources is not a small company. They are the 5th largest iron ore producer in Australia. 
  • It is a relatively simple DSO operation which produces both lump and fines, which are hauled to Port Hedland utilising road trains and exported via Utah Point. It has a mine life of greater than 10 years based on current production rates of 6-7Mtpa. 
    • Around $1B of revenues of which BCI would get around ~ $80M annually in royalty ~ $6M annually in EBITDA. Although, this year and last year is different due to the high iron ore price.
  • BCI gets an annual pay check for owning the land operated by Mineral Resources. However, that's not all they plan on doing.
• The second business under construction is the Mardie Project. To me, this project defines the valuation. If it succeeds the valuation should be much higher. If it fails then you value BCI Minerals as purely an Iron royalty business where you forecast the change in Iron ore price and the life of the mine. 
  • The royalty does not last forever. The first shipment happened in 2014, the mine is expected to last 10 years so by 2024 the mine would theoretically be unsustainable. 
  • Hence, I believe that's why management pursue Mardie as they know that they need to use the cash before the royalty fee runs out in 2024.
  • Mardie will be the largest solar salt project in Australia once constructed, and the third largest in the world. It will also be the first Australian operation producing both salt and sulphate of potash (SOP) from seawater. The economics for salt and SOP: 
    • Salt (gross margin 60%) 
      • $57/t price for 60 year time horizon
      • $21.50/t operating cost for 60 year time horizon 
    • SOP (sulphate of Potash) (gross margin also 60%)
      • $825/t price for 60 year time horizon
      • $337/t operating cost for 60 year time horizon
  • Potash is an interesting choice and they are doing it in a renewable way which is quite innovative. To learn more about why Potash is incredibly important for agriculture (Veritasium video)

That's a broad overview of the 2 businesses. Next I will share my thoughts on the Mardie project as this entity drives the valuation.