Atlas Iron (AGO)

[greengiraffe]

Atlas’ cash reserves depleted as iron ore price tumbles
THE AUSTRALIAN OCTOBER 24, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth

Time for an iron ore reality checkAtlas Iron
ATLAS Iron has continued to chew up its cash reserves as it fights for profitability in the face of plummeting iron ore prices.

Atlas yesterday said it had been able to make better than expected progress on reducing both its production costs and its forecast capital expenditure, reducing its forecast all-in cash costs for 2015 by $3 per tonne to $65-$70 per tonne.

Delivering the company’s September quarterly report yesterday, Atlas managing director Ken Brinsden said the company had been able to deliver an operating margin of about $2 per tonne during the period.

Despite that, Atlas’s cash on hand dropped from $265 million to $205m over the course of the quarter.

Atlas said it had pumped around $67m into development projects over the quarter, although that cost was partially offset by the receipt of $18 million in returned mine rehabilitation funds during the period.

Mr Brinsden said that the things Atlas could control were “going really well”, pointing to a drop in the miner’s all-in cash costs during the quarter from $75 per tonne to $68.90 per tonne.

Iron ore prices have plunged by more than 40 per cent so far this year on the back of an influx of new supply out of Australia and a softening in demand out of China. The ore Atlas sells ­attracts a discount due to its lower grade and quality, meaning the company is fighting to break even in the current price environment.

While concerns about Atlas’ ability to maintain profitability have contributed to the near-70 per cent fall in the company’s shares this year, Mr Brinsden said he believed the market had been too pessimistic about the company and its cost base.

“We don’t agree that we should be described as a high-cost junior producer. In fact we’d argue we have made some significant inroads into our cost base already, and there’s more to come,” he said.

“We think we’re really competitive once you compare the cost base amongst the juniors down here in Australia and very competitive in a global sense across the entire production base that delivers into seaborne trade and key Asian markets.”

Mr Brinsden said he was unconcerned with the shrinking cash position, given the company was nearing completion of its key growth project and capital expenditure had “in essence” peaked.

“We might marginally increase the net debt position in the current quarter but we don’t expect it to go much further because we will have finished the majority of the investment in the business,” he said.

Shares in Atlas closed steady at 36c yesterday.

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Atlas Iron cuts director pay by 15%
DECEMBER 02, 2014 3:15PM

Atlas Iron has shaken up management, downsizing all directors' pay packets by 15 per cent, as two members step down from the mining company's board.

The Pilbara miner said in a statement that as part of its cost and efficiency review, non-executive director Geoff Simpson and executive director Mark Hancock have offered to step down from the board.

Atlas also said the remaining directors have decided to reduce their remuneration by 15 per cent, effective from December 1.

Atlas is targeting $65-$90 million in annual savings by June 2015.

Atlas shares were trading at 16.5c at 3pm (AEDT) today, having fallen from a high of $4.22 in July 2011.

Along with Kerry Sanderson, who resigned as non-executive director in September, the three departures reduce the number of Atlas directors from nine to six.

Mr Simpson has decided to focus on his increasing obligations as a senior partner in law firm Allen & Overy, while Mr Hancock will remain Atlas' chief commercial officer.

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Negative rating shakes Atlas
THE AUSTRALIAN DECEMBER 04, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth
THE nightmare run for Atlas Iron has continued, with ratings agency Moody’s Investors Service downgrading its outlook on the company to negative.

Moody’s said pressure was building on Atlas’s ability to generate cashflow and warned there was a “material risk” that the current weakness in iron ore prices would continue over the coming months.

Atlas is battling to cut costs and return to profitability amid a steep drop in iron ore prices. On Monday, it announced that a further two directors would leave the company and the remaining board would have their salaries cut by 15 per cent as part of its wider efforts to remove between $65 million and $90m in annual costs out of the company.

“The change in outlook reflects our expectation that iron ore fundamentals will remain weak into 2016,” Moody’s analyst Saranga Ranasinghe said.

“Given the further deterioration in the iron ore price, we see negative pressure building on Atlas’s cashflow generating ability and a depletion in its previously solid liquidity position.”

Atlas had about $204m in cash on its balance sheet at the end of September, but that is likely to have fallen amid persistently low iron ore prices. The group also had around $284m in debt to its name. Its shares have fallen by more than 85 per cent so far this year, dropping a further 0.5c yesterday to 17c.

While the falling Australian dollar and the drop in the oil price will provide some relief to Atlas and other Australian iron ore miners, a fund manager who did not want to be named said there were concerns about whether Atlas’s comparatively high-cost iron ore mines could compete in a prolonged low iron ore price environment.

“They’re trying to get their costs down, and they’re working with their contractors to get the costs down, but you can’t change the structure of an orebody or the type of ore in it,” the fund manager said. “There’re only ever so many levers they can pull, and I just don’t think they can get their all-in costs below $US70 any time soon.”

[BlueKelah]

Iron ore price continues its downtrend and atlas experienced a good dead cat bounce since my last post.

Probability of iron ore price getting down to near production cost of bhp, tinto and vale levels is very high, probability of atlas surviving this downturn is not so high

If one has confidence on an iron ore rebound in the next few years, better vest in the big boys like rio or bhp who have bigger moats. BHP and Rio are flooding the market with iron ore, just like the Arabs are flooding the world with oil.

Don't need to be an expert see that with excess supply and flat demand which direction the price is going to go.

-- via Xperia Z1 with tapatalk

[BlueKelah]

Atlas Iron shares suspended as iron ore crash forces review of business

Dead cat bounce is now dead cat.

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Atlas Iron to shut its Pilbara mines as lenders put the squeeze
THE AUSTRALIAN APRIL 11, 2015 12:00AM

Paul Garvey

Resources Reporter
Perth

Atlas Iron will shut down all of its Pilbara iron ore mines by the end of the month and up to 575 jobs could go after the slumping iron ore price claimed its biggest ­casualty yet.

Perth-based Atlas last night said it had taken the decision to end mining in response to the sharp fall in iron ore prices, which had left its operations bleeding money.

The news prompted another angry outburst from West Australian Premier Colin Barnett towards the iron ore heavyweights behind much of the production surge. Mr Barnett called for the likes of Rio Tinto and BHP Billiton to “back off” from further supply increases.

Atlas had been under increased pressure from its lenders to act to stop the bleeding, with its cash reserves being drained by about $40 million a quarter and its prospects of repaying a $US275m ($350m) debt facility by December 2017 becoming increasingly remote.

Start of sidebar. Skip to end of sidebar.

MOREFlanagan’s battle to keep Atlas afloat
MORELower for longer: facts about iron ore
End of sidebar. Return to start of sidebar.

The decision to shut down its entire production base represents the most significant hit to an Australian iron ore miner as a result of the deep dive in iron ore prices. The move will result in major job losses at Atlas and the mining contractors that service its operations. About 500 people work at the Atlas mines, while another 75 are employed in Atlas’s Perth office.

“To suspend our operations, with the impact that will have on so many committed and talented people, is an extremely difficult one,” Atlas managing director Ken Brinsden said.

“I sincerely thank all those who have worked so hard to build Atlas’s production base and those who have worked furiously to maintain Atlas’s competitive position over the past 15 months, in the face of increasingly oppressive market conditions.”

Speaking on ABC radio minutes after the shutdown was announced, Mr Barnett said he was very sorry to hear the news and rebuked the larger miners for continuing to add more tonnes of iron ore production to the market.

Mr Barnett said that while he was not threatening anyone, he expected the major miners to manage their industry and market in a “professional” way.

“Don’t forget who owns the iron ore, who controls the projects, who controls the ports, who controls tonnages and the like,” he said.

“I’m not about to interfere in the iron ore industry, but I want the companies to understand I am not some dopey premier who is going to sit back and watch our natural resources sold below their true value. They belong to the people of Western Australia and we have a direct interest in that.”

Atlas said it would now enter discussions with its creditors over how to restart its mines if iron ore prices recovered or if it could reduce its operating costs further.

While yesterday’s decision will bring a sudden end to Atlas’s status as a miner, the continued talks with its financiers will offer some hope that the company can avoid administration.

The company had $169m in cash on its balance sheet at the end of December, but it will need to reach agreement with its mostly American lenders over its remaining debt commitments if it is to escape outright collapse.

Mr Brinsden has consistently described its $US275m term loan as “covenant-lite”. One of the key covenants is believed to relate to the value of Atlas’s asset base, which stands to take a significant hit from the decision to shut down production.

Moody’s and Standard & Poor’s have both downgraded their ratings on Atlas and its debt this week, although the company said it would have no impact on the terms governing its debt facility.

Atlas’s mines had a combined production capacity of 13-15 million tonnes a year, making it the largest source of Australian iron ore output driven out of production by the falling iron ore price.

The price of iron ore has plunged more than 60 per cent since last year on the back of a surge in supply out of WA and cooling demand from China, which consumes around two-thirds of the world’s seaborne iron ore.

The closure of the Atlas mines will also affect several contractors, with ASX-listed trio MACA, McAleese Group and Mineral Resources among those with contracts at the mines. BGC Contracting, Wallis Drilling and ESS also have contracts.

Arrium earlier this year decided to shut its loss-making Southern Iron operations near Coober Pedy with the loss of up to 600 jobs, while the Bruce Mathieson-backed Northern Territory miner Western Desert Resources collapsed into administration late last year.

Andrew Forrest’s Fortescue Metals Group has also come under pressure, with the miner flagging potential asset sales after a $US2.5bn debt refinancing attempt failed. It still carries $9bn in debt.

[greengiraffe]

STARING INTO THE ABYSS
2189 words
11 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Downfall The story of Australia's iron ore boom and bust can be told through ore company Atlas Iron, writes Tess Ingram.

For years BC Iron founding director Mike Young has sent friend and former rival Atlas Iron chairman David Flanagan congratulatory text messages when the junior iron ore miner hit on success. This week, the exchange was more sombre.

On Tuesday morning, after iron ore fell overnight to a fresh 10-year low of $US46.70 a tonne, Atlas suspended trading of its shares. A company that had so successfully ridden the mining boom said the rapid price falls had forced a comprehensive review of the business, including possible asset sales and a capital restructure.

"I sent him [Flanagan] an SMS on Tuesday and it said 'Hi mate, tough times at the moment. If you need a beer let me know. Best wishes for a successful outcome'," Young told AFR Weekend.

"And this is what David said: 'Pass me the sword. It's time to fight like Spartans'. That sums him up and a lot of analysts are saying they're done, but believe me, if anyone can pull something out of a hat it is David."

Late on Friday, Atlas said it had decided to gradually mothball all of its mines over the month of April. In a statement the company said: "The global supply-demand imbalance for iron ore has driven prices down to the point where it is no longer viable for Atlas to continue production."

Approximately 500 people are employed across Atlas' production assets, including direct employees and those of the company's contractors.

A restart depends on future market conditions but Atlas said it is hopeful the price will "ultimately increase" due to the amount of global production currently underwater.

The nation's worst fears are being realised as hundreds of jobs are lost and once profitable operations turned off, marking the frightening bottom of the iron ore boom.

Iron ore's spectacular price collapse to below $US50 a tonne has stunned the industry. In a battle for market share, the world's biggest miners - Rio Tinto, BHP Billiton, Fortescue Metals Group and Brazil's Vale - flooded the market with supply and pushed the price of the steel-making ingredient to such low levels that only the largest players are not recording losses.

Atlas' problems have been compounded by the fact that it borrowed heavily to fund its growth two years ago and is now desperately working to sure up its cadre of mainly US-based debt holders. On Friday, it said it was still in discussions with its creditors.

These mysterious creditors from the other side of the world hold Atlas' fate in their hands. Get used to hearing more from them as other miners in the once-booming sector struggle to cope and debt holders look to secure their money.

At the current benchmark iron ore price of about $US48 a tonne, Atlas is losing about $US15 on every tonne of ore it ships. Breakeven price analysis from UBS indicates that Atlas, BC Iron, Mount Gibson Iron, Grange Resources and Fortescue are all under water at a price below $US50 a tonne.

But it is the story of Atlas, a former market darling, that perfectly illustrates the rise and fall of the mining boom, and with it Australia's economic fortunes.

At the beginning of the millennium, iron ore prices were still modest but entrepreneurs like Fortescue's Andrew Forrest and Flanagan anticipated prices were about to take off due to booming construction in China. By 2002 China had overtaken Japan as the world's largest importer of iron ore, but it was still producing less than 200 million tonnes of steel annually. The iron ore price was sitting around $US30 a tonne. But China's growth rates, as it rapidly built apartments, roads and rail lines, had made the world take notice. Everyone suddenly had a view on China and how its urbanisation and rising middle class would transform the market for mineral commodities.

The market opened up to mid-tier miners as demand soared and the Pilbara's vast red dirt swiftly became a canvas of cranes and pick-up trucks dotted around the majors' decades-old operations.

By 2004 the China bulls were not just right: many were on their way to getting rich. Words like "commodities super-cycle" and "resource boom" were starting to be thrown around as China's demand for steel rose at annual rates of 20 per cent.

Towards the end of 2004, Flanagan, an experienced geologist, floated a $9 million gold and base-metal explorer called Atlas Gold. He was the company's sole employee.

In January 2005 a drilling program started at the company's Pardoo project, 75 kilometres east of Port Hedland, to determine the potential for iron ore. Flanagan and company had moderate success in their efforts to find gold but Atlas' iron ore deposits sparked greater interest.

Within just six months Atlas had firmed up a resource of 7.2 million tonnes at 57.2 per cent iron, lower than the benchmark 62 per cent iron grade shipped by its neighbour BHP, but in demand nonetheless.

In the three years to 2006 China's steel production doubled to 400 million tonnes. Over the same period its share of world steel production had tripled to 35 per cent. China was not just the dominant story in iron ore, it was the only story.

Pardoo was opened in late 2008, in the middle of the global financial crisis, for about $14 million in equity.

By this time the iron ore price was beginning to climb, having nearly doubled to about $US60 a tonne in little more than a year, and the company had a market capitalisation of around $127 million, not dissimilar to where it sits today.

The Pilbara was like Picadilly. The optimism was infectious. The whole country was pinching itself with luck as government coffers were topped up by the resultant royalty stream.

But still there was trepidation from Flanagan. Just before opening Pardoo, he acknowledged to AFR Weekend that the company was racing the clock.

"It is not a slow steady jog," Flanagan said at the time. "This is not a walk. This is a sprint. You're competing against rising costs. You're competing against time because your profit margins are going to be squeezed, because one day the iron ore price is going to fall so you want to get as much of it as you can."

Atlas clinched the critical port infrastructure it required and rushed to get another four mines into production by mid-2014.

But the price peaked at $US180 a tonne in early 2011 and within six years of listing, Atlas' market capitalisation was more than $2 billion as the company rode the unprecedented wave of Chinese growth.

Then the wave started to crash, the amount of ore leaving Australian shores increased and the price began to fall. In the nine years to 2014, China's steel production doubled again, but it was accompanied by a greater rise in supply and then falling demand for steel in China early this year.

Royalty revenue has fallen with the ore price, leaving state and federal government forecasters red-faced and forced suddenly to revise over-optimistic price forecasts. In WA, an iron ore spot price average of $US68 or less for 2014-15 would mean the former boom state would get more than $3 billion less in iron ore royalties than anticipated just one year ago, according to analysis of state budget calculations.

Opinions vary on whether Atlas did enough to cash in on the soaring price.

"Ultimately they did a fantastic job to get their model up and running and we were sceptical about their ability to truck more than 10 million tonnes, and they did a great job on that so it's unfortunate the sun didn't shine for long enough for them," Westoz Funds Management executive director Dermot Woods says.

BHP Billiton, Rio Tinto, Fortescue Metals Group and Brazilian giant Vale have been blamed for inundating the market with supply, and continuing to do so while the price languishes at frightening lows.

Atlas repeatedly declared during 2014 that mines in China higher up on the cost curve would be forced to close, but while this has happened to some degree it has been slower and to a lesser degree than expected. On Wednesday, China halved the rate of tax it charges domestic iron ore miners in an effort to curb their losses and prevent closures. It is now Atlas that has been forced to shut up shop.

"Atlas was a child of the iron ore boom and they could only have got up with prices over $US100 a tonne because not only were they high-cost, they also received a discount on their lower-quality ore," Perth resources analyst Peter Strachan says. "It is always about the underlying commodity price and now the price doesn't stack up, it's as simple as that."

But others argue that the company's focus and expenditure on its long-term growth assets was misplaced, especially as the price began to slide.

"These guys are explorers, not operators," one senior industry executive says. "They seriously lack operational expertise and were always looking to find the next big thing."

The company's growth portfolios are aptly named "Horizon One, Two and Three". Perhaps, one source suggests, no matter how fast Atlas drove, the horizon would never have been within reach.

Atlas' secured creditors are deciding whether to push for an administration or receivership, given that the miner is struggling under $327 million in gross debt, and is bleeding cash at current iron ore prices. It is understood they have lined up Ferrier Hodgson to take control should they be unable to cut a deal. Atlas' $169 million cash on hand at the end of December is understood to have fallen to about $130 million.

Most of Atlas' debt is held by bondholders in a fully drawn Term Loan B debt facility of about $270 million, which matures in December 2017. The loan is linked to an asset coverage covenant, which could be triggered when the value of Atlas' assets are reduced for the current financial year.

Atlas is not currently in breach of its loan but AFR Weekend understands the noteholders could push for it to flag the potential default at its next review. Mothballing its mines could also trigger a review of value.

The Atlas board, advised by Deloitte, Ashurst and Lazard, has been assessing the cost of mothballing its Pilbara operations, working to convince its contractors that mine suspension is the best path to ensure a future restart. Contractors include BGC Contracting, MACA and McAleese. They are also feeling the pinch of the commodity downturn and this news will surely be a blow. But ultimately the creditors' view on the price is what matters. The question is whether they think this temporary hiatus, for however long Atlas' $130 million cash lasts, will be enough for the price to recover. Atlas needs a benchmark iron ore price of $US65 to $US70 a tonne to be making a slim cash margin.

"The creditors will be really pushing to try and get that $300 million back," one administrator says. "There are informal ways of dealing with creditors and I imagine the guys at Atlas are frantically trying to settle agreements on that front."

Patersons securities analyst Rob Brierley said the miner had "kept the wolves at the door for the moment" but would be in discussions about ongoing repayments to service debt. Regardless, one of the underlying fears is that the fate of Atlas could be symptomatic of the problems lurking within other miners. The WA government has offered eligible smaller iron ore miners a rebate on 50 per cent of their royalty payments over a 12-month period to try to free up cash flow.

Mineral Resources chairman Peter Wade says his company's operations are also under pressure. "A four in front of the price makes everyone, even BHP and Rio, consider the standing of their operations," Wade says.

But if Atlas' review reeks of anything, it is urgency. In early 2012, the company outgrew it offices in Perth's riverside Alluvion building and signed a fixed 12-year lease for prime space in one of the city's newest office blocks. The ambitious junior was striving to export just 6 million tonnes that financial year but believed close to 50 million tonnes a year by 2017 was on the cards. Enormous growth was in the pipeline as the producer revelled in an iron ore price of around $US140 a tonne.

The company's recent half-year accounts illustrate its dramatic change in fortunes. "Due to changes in requirements" Atlas is now subletting some of its office space and trying to find tenants for the rest. Even then, the steep change in market conditions in Perth over the last four years means Atlas is subletting at a loss.


Fairfax Media Management Pty Limited

Document AFNR000020150410eb4b0000q

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Atlas Iron limps back to ASX
THE AUSTRALIAN JULY 28, 2015 12:00AM

Paul Garvey

Resources Reporter
Perth
 
  Source: TheAustralian
Embattled iron ore miner Atlas Iron has made a miserable return to the ASX, with its already deeply discounted shares suffering a heavy drop yesterday.

Perth-based Atlas began trading yesterday for the first time since it sought suspension in April amid plummeting iron ore prices and concern about its ability to survive.

Atlas cleared the way for a resumption of trading after raising $86 million in fresh equity at just 5c a share, but the stock was sold down heavily yesterday. The shares, which had last traded at 12c a share prior to its suspension, opened at 3.3c and fell as low as 3.1c before closing more than 68 per cent lower at 3.8c. Around 222 million shares, or about 11 per cent of its issued capital, changed hands during a frenetic session.

Morgans resource analyst James Wilson said the weak return was not unexpected, given the negative macro factors at play across the resources industry and within the iron ore industry specifically. “The iron ore price being where it is this week doesn’t help and just puts more added pressure on them,” Mr Wilson said.

Iron ore has continued to trade around $US50 a tonne, the same price that Atlas is targeting as its break-even price from its three Pilbara iron ore mines.

While Atlas shares endured a torrid return to trade yesterday, Mr Wilson said Atlas should be recognised for its efforts in finding a way back to the market.

The $86m raised by Atlas was well short of the notional $180m maximum that it had approval to raise, but came despite the iron ore price falling to a fresh low during the final days of the offer.

“You’ve got to give them credit where it’s due, to raise that much money in this sort of market is a big effort, that’s a big lick of stock,” Mr Wilson said.

The company has restructured the terms of its contracts with all its major contractors and suppliers, giving it a chance of returning to profitability even if ore prices remain low. Its contractors also took up shares in the raising, with BGC Contracting and McAleese group now Atlas’s two biggest shareholders.