At the current iron ore price, exchange rate, and prevailing quality discount, we estimate that BC Iron currently has zero free cash flow

At the current iron ore price, exchange rate, and prevailing quality discount, we estimate that BC Iron currently has zero free cash flow. BC Iron's share price has fallen by 80% in the last three months. The drop from $3.00 to $0.60 since mid-August has occurred concurrently with the $256m acquisition of Iron Ore Holdings (IOH) and the precipitous fall in iron ore price to US$70/t. We have stress tested BCI's cashflows at various iron ore prices, exchange rates and quality discounting. Should the iron ore price remain in the low US$70's over the next couple of quarters, with no considerable positive movement in exchange rate or quality discount, we suspect that the viability of the Nullagine JV will be put under significant pressure. Certainly, at the current iron ore price, exchange rate and prevailing quality discount we estimate BCI has zero free cash flow. We have moved the rating from a BUY to a HOLD, with a reduced price target of A$0.60.