Atlas Iron (AGO)

[greengiraffe]

Did more research on Atlas Iron following extensive reading on iron ore prices:

http://www.atlasiron.com.au/irm/content/...ectCount=1

http://www.atlasiron.com.au/irm/content/...px?RID=356

http://www.atlasiron.com.au/IRM/Company/...D=81609419

Note now market cap is only 330m following recent plunge in share price.

Annual Report:

http://www.atlasiron.com.au/IRM/Company/...D=26555669

My feel are as follows:

Seriously with commodity prices in a Sh** hole, there is no need to dig deep for pay dirt ie E&P is a forgotten game or even the Juniors.

More importantly is to look for producers that have sunk in capex and to see if irrationale exuberance have taken excessive toll on amount invested by such producers

I think that Atlas Iron, AGO ($0.37) is 1 such example:

no risks of going under since net debt is only $0.026

mining capex and mining rights b4 impairment @ 0.56 and $0.76 respectively.

Only risks is that it is a higher costs producer than BHP, Rio and FMG.

http://www.aquilaresources.com.au/go/cor...background

This iron ore producer got taken over by Baosteel and Aussie rail road operator Aurizon

AQA taken over by Baosteel @ 3.75

Baosteel owns 85% while Aurizon owns 15%

key difference

AQA net cash $1.20

mining rights at book value $0.69

capex at book value $0.29

taken over at 3.75

with dcf $3.90 - $5.24

Vested
GG

[CityFarmer]

GG has posted the maiden post of Australia Listed company. I would like to highlight that GG is the person suggested the new sub-forum. I heard from GG that may be Boon can contribute further into the thread. Looking forward to Boon's post

Thanks GG. Let's hear more on Australia companies for our value buddies.

Regards
Moderator CF

[Boon]

My preliminary take on Atlas Iron (AGO):

1) Shares price = AUD 0.375
2) Shares outstanding = 919.48 million
3) Cash = AUD 264 million (30-June-2014)
4) Debt drawn = AUD 302 million (30-June-2014)
5) Dividend = AUD 0.02 per share.
6) Development expenditure decreasing from AUD 372M in FY14 to AUD 125M for FY15 (Management projection)
7) NAV = AUD 1.67
8) AGO is trading at steepest discount to NAV compare to its major competitors : BHP, Rio, Vale & Fortescue (FMG).
Price to Book :
Rio = 1.88
BHP = 1.97
Vale = 1.31
Fortescue (FMG) =1.22
Atlas (AGO) = 0.22
9) However, AGO does not have cost advantage over its competitors.
Break even cost : USD/tonne
Rio = 45
BHP = 49
Vale = 60
Fortescue = 73
Atlas = 82
10) AGO trucks its ore to Port Hedland – has no assess to rail network, with existing train lines dominated by larger players – probably explains cost disadvantage
11) If AGO could find a rail solution to replace its trucking model - costs could be reduced substantially.
12) Demand risk: fundamentals are still very strong in the industry - Industrialization/urbanization across SEA, Middle East, South-America will underpin demand for iron ore as growth cools in Chinese economy.
13) Supply risks - massive expansions by low-cost miners, BHP, Rio and Vale would create a supply surplus and drive prices down even further – there is high possibilities that these low cost producers may pursue this “supply strategy” to capture market shares..
14) Costs are mainly in AUD and incomes are mainly in USD - a weakening AUD would help.
15) Main risk is still iron ore price movement in the future.
16) If margin could be maintained -iron ore price stays above its breakeven cost – fine.
17) If iron ore price stays below its break-even cost – can it weather the falls until other high-cost players leave the market.
18) My take is for volume of 12 Mtpa, for every USD 10 / ton of market price below its breakeven cost – AGO would lose USD120 million per year.
19) It has cash to sustain short term loses and paying off interest on borrowing - beyond which it would have to sell its assets or shut down.
20) Depressed share price could make it a potential takeover target.

(not vested – on watch list)

[greengiraffe]

Many thanks Boon.

Always appreciate your hard work.

Speculatively Vested
GG

My preliminary take on Atlas Iron (AGO):

1) Shares price = AUD 0.375
2) Shares outstanding = 919.48 million
3) Cash = AUD 264 million (30-June-2014)
4) Debt drawn = AUD 302 million (30-June-2014)
5) Dividend = AUD 0.02 per share.
6) Development expenditure decreasing from AUD 372M in FY14 to AUD 125M for FY15 (Management projection)
7) NAV = AUD 1.67
8) AGO is trading at steepest discount to NAV compare to its major competitors : BHP, Rio, Vale & Fortescue (FMG).
Price to Book :
Rio = 1.88
BHP = 1.97
Vale = 1.31
Fortescue (FMG) =1.22
Atlas (AGO) = 0.22
9) However, AGO does not have cost advantage over its competitors.
Break even cost : USD/tonne
Rio = 45
BHP = 49
Vale = 60
Fortescue = 73
Atlas = 82
10) AGO trucks its ore to Port Hedland – has no assess to rail network, with existing train lines dominated by larger players – probably explains cost disadvantage
11) If AGO could find a rail solution to replace its trucking model - costs could be reduced substantially.
12) Demand risk: fundamentals are still very strong in the industry - Industrialization/urbanization across SEA, Middle East, South-America will underpin demand for iron ore as growth cools in Chinese economy.
13) Supply risks - massive expansions by low-cost miners, BHP, Rio and Vale would create a supply surplus and drive prices down even further – there is high possibilities that these low cost producers may pursue this “supply strategy” to capture market shares..
14) Costs are mainly in AUD and incomes are mainly in USD - a weakening AUD would help.
15) Main risk is still iron ore price movement in the future.
16) If margin could be maintained -iron ore price stays above its breakeven cost – fine.
17) If iron ore price stays below its break-even cost – can it weather the falls until other high-cost players leave the market.
18) My take is for volume of 12 Mtpa, for every USD 10 / ton of market price below its breakeven cost – AGO would lose USD120 million per year.
19) It has cash to sustain short term loses and paying off interest on borrowing - beyond which it would have to sell its assets or shut down.
20) Depressed share price could make it a potential takeover target.

(not vested – on watch list)

[BlueKelah]

Look at global commodities market, even now Soy bean prices are crashing. Rubber and palm oil already down. Iron ore lows are $20-30 around year 2000 before china boom started the commodity supercycle. There is still some ways to go. I would say till maybe at least USD$60 as USD$30 in 2000 is probably worth USD$60 now given that USD after all the QE is not worth as much as it did before.

Demand is now flat if not contracting and supply is just booming. Don't need to be an economist to say where prices will be headed.

In the end I think just BHP, RIO and VALE will be left and eat up the other small guys. Very unlikely VALE and AUssie bigshots will get together and reduce supply like the rubber companies in ASEAN countries are doing.

Gonna see a big drop from now into the new year as FED will only likely respond with a QE5 once the Christmas sales are shown to not do too well.

[greengiraffe]

I think you are being too pessimistic. That is my personal view.

Its always easy to be a pessimist. Unfortunately, human beings are survivors and hence they will pull out all stops to revive or even to manufacture optimism.

There is no doubt that the world is sick ever since the GFC. However for a lot of losers, there are few winners and these few winners are always ready to redeploy their winnings.

Economics is social science of human behaviour that will influence demand and supply. Once an equilibrium is reached at least in a textbook concept, it will settle. In real life though, there will be overshot around the equilibrium that results in extreme optimism and pessimism.

October will pass and festive X'mas and New Year will usher in.

Its always easy to look into the past and try and look at the possibility that the past may be revisited. Unfortunately, in economics term, downward price adjustments entails extreme pain which is a scenario that is staring globally now. If it is not hurting and the bleed won't stop anytime soon, then you may be right and even the financial system which you think you are hiding your hard cash in may not be safe.

TGIF
GG

Look at global commodities market, even now Soy bean prices are crashing. Rubber and palm oil already down. Iron ore lows are $20-30 around year 2000 before china boom started the commodity supercycle. There is still some ways to go. I would say till maybe at least USD$60 as USD$30 in 2000 is probably worth USD$60 now given that USD after all the QE is not worth as much as it did before.

Demand is now flat if not contracting and supply is just booming. Don't need to be an economist to say where prices will be headed.

In the end I think just BHP, RIO and VALE will be left and eat up the other small guys. Very unlikely VALE and AUssie bigshots will get together and reduce supply like the rubber companies in ASEAN countries are doing.

Gonna see a big drop from now into the new year as FED will only likely respond with a QE5 once the Christmas sales are shown to not do too well.

[Boon]

I would certainly disagree with the "Junk rating".

(not vested - on watch list)
________________________________________________________________________________________________________________

Iron ore flood leaves little wriggle room for minnow Atlas

Tue Oct 21, 2014

By James Regan and Sonali Paul

SYDNEY/MELBOURNE, Oct 21 (Reuters) - A flood of low-cost iron ore is driving tiny Australian miner Atlas Iron to its break-even point, underscoring the pain inflicted by a ramp-up in output by mega-producers Rio Tinto and BHP Billiton.

Atlas, which raced into production half a decade ago when iron ore prices were booming on the back of a supply shortage, is high on analysts' lists as "collateral damage", as BHP and Rio Tinto chase a larger slice of the 1.3-billion-tonne-a-year global market.

Atlas is expected to confirm its fiscal 2015 production guidance of 12.2-12.8 million tonnes on Thursday, about as much as BHP and Rio together churn out in a week. But the problem is costs - more than double those of its bigger rivals.

UBS last week downgraded Atlas to "sell" from "neutral".

Atlas chief Executive Ken Brinsden has promised to attack costs, which at a targeted $64-$68 per wet metric tonne in fiscal 2015 are among the highest in Australia's Pilbara region.

Atlas sold its ore in the half-year to June 30 for $86.29 a tonne, but this half-year's average is set to be lower, given a 13 percent drop in spot prices .IO62-CNI=SI since July 1, while Atlas ore is also discounted because of its lower grade.

An Atlas spokesman said the company's cost position would be updated in Thursday's September quarter operations report.

"Atlas has to make some tough decisions," said James Wilson, a mining analyst for Morgans Financial. "BHP and Rio want their ore to be the most competitive in the world, which as a result could push lesser competitors like Atlas off the cliff."

In June, the 1.7 million-tonnes-per-year Cairn Hill mine, started in 2010 when iron ore fetched twice today's price, was shut after costs of $104 a tonne overran selling prices. Other small miners once hoping to make inroads into the seaborne-traded market but now struggling include Pluton Resources, Sherwin Iron Ltd <SHD.AX< and Noble Group's Frances Creek mine.

Atlas has its work cut out. Unlike Rio Tinto's modern rail network, Atlas must truck its iron ore to port, capping its production capacity at 15 million tonnes a year.

Rail would increase Atlas' production capacity and open up stranded deposits it holds in remote Pilbara districts, though talks with fellow miner Fortescue Metals Group and rail operator Aurizon Holdings have yet to yield results.

Highlighting investor concerns, Atlas is the most heavily shorted iron ore producer and the sixth most heavily shorted of all stocks on the Australian Securities Exchange, with 12.3 percent of its shares shorted as of Oct 14.

Valuations on Atlas are weaker than the median among nine Australian iron ore producers ranging from Fortescue to Flinders Mines, according to Thomson Reuters data.

At A$0.37, Atlas shares are trading at less than a quarter of their net tangible asset value of A$1.61. By comparison, rival Pilbara producer BC Iron's shares are worth 71 percent of their underlying asset value.

Standard & Poor's and Moody's have Atlas rated deep in junk territory, although both agencies said the company's strong cash position of A$264 million ($233 million) at end-June should help to shore it up at current prices.

"Even in a worst-case scenario whereby Atlas is not making a profit, its liquidity position should help them ride out a low pricing environment for a while," S&P analyst May Zhong said.

"A lower Australian dollar will help their position, but the dollar isn't falling as much as iron ore prices," she added. (1 US dollar = 1.1351 Australian dollar)

http://www.reuters.com/article/2014/10/2...CL20141021

[greengiraffe]

I oso gave up liao given the senseless game being played out by BHP & Rio. Frankly the angmos are simply playing into the hands of the waiting Chinese vultures.

Price competition in a bid to drive out higher costs competitors is a welcome move to benefit consumers in which case is China who has the financial muscle to vulture when the dusts settle.

Divested
GG

[greengiraffe]

http://www.asx.com.au/asxpdf/20141023/pd...dqwxz1.pdf

No surprises here but costs and capex cutting accelerated...

Divested
GG

[greengiraffe]

Atlas Iron cuts costs as prices fall
BUSINESS SPECTATOR OCTOBER 23, 2014 11:33AM

Mitchell Neems

Business Spectator Reporter
Melbourne

ATLAS Iron has significantly reduced its operational costs in the September quarter, a sign the miner says of its adaptability to market conditions.

Atlas (AGO) said it reduced costs across its operations, lowering all-in cash costs to $68.90 per wet metric tonne (wmt), down from $75/wmt in the previous quarter.

The miner’s C1 cash costs came in at $48.10/wmt in the quarter, down from $51/wmt.

Atlas said the reduction in costs continued a material structural shift in its sustainable overall cost base.


As a result, Atlas reduced its all-in cash cost guidance for fiscal 2015 to between $65 and $70 per wmt, while C1 cost guidance has been cut to between $46 and $49 per wmt.

In the three months to September 30, Atlas shipped 3.09 million wmt, largely in line with the June quarter.

Capex guidance for the full year has been reduced to $94 million, from $125 million.

Atlas managing director Ken Brinsden said the material reduction in costs across the business highlighted the group’s ability to respond to changing market conditions.

“The cost reductions, together with continued strong results from operations, will ensure Atlas remains competitive and can take advantage of iron ore price increases as they emerge,” he said.