Atlas Iron: Back from the brink

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 03 Apr 2017   Posted by admin


All Images: Atlas Iron.


By Cameron Drummond


ATLAS Iron has crawled itself back from near extinction after the price of iron ore plummeted in 2015, which subsequently forced the company to suspend its mining operations and restructure company debt after heavy financial losses.

Perth-based Atlas Iron listed on the ASX in 2004, and has since grown into a mid-sized iron ore mining and exploration company.

It currently operates three projects: Wodgina, Abydos and Mt Webber – all in the northern Pilbara region of WA – shipping at a run rate of about 15 million tonnes per annum (mtpa).

After a rocky 2015 when the company nearly went bust, Atlas is looking to be debt free by the end of the 2018 financial year.

All three operations had been suspended by April 2015 after the company posted a $1.4 billion loss for the 2014 financial year due to drastic falls in the iron ore price.

Yet the company fought for survival, negotiating a deal with contractors that slashed its operating costs and completing a $87 million capital raising which enabled all three mines to be restarted by July that year.

With debt looming large during 2016, Atlas pushed through a crucial debt-for-equity swap with its creditors, approved by shareholders in April that year.

Its debt went from $257m down to $109m, resulting in lenders holding about 70 per cent of shares and options.

Iron ore prices enjoyed a surprise lift during 2016, translating into increased revenues for Atlas which enabled it to start paying down debt and look at options to continue and expand its mining operations.

With Wodgina due for mine completion by mid-2017 and Abydos by the end of the year, Atlas moved its focus to expand Mt Webber (which has a current mine life of six years) and develop its new Corunna Downs mine.

The expansion of Mt Webber, combined with the construction of the Corunna Downs project, would give Atlas a total export rate of 12mtpa of iron ore by the June 2018 quarter.

 

Mt Webber

 

The Mt Webber iron ore mine is located 230km south east of Port Hedland, and was opened in July 2014 following the completion of Stage 1 of the project, with a production capacity of 3mtpa.

Completion of Stage 2 followed a few months later, doubling capacity to 6mtpa.

Mt Webber had ore resources of 56.1 million tonnes (mt) and reserves of 47.6mt as of June 2016, for a mine life of between 7 and 8 years.

During the first half (H1) of FY17, Mt Webber completed a production capacity expansion from 6mtpa to 7mtpa, with Atlas targeting an additional expansion up to about 8mtpa by FY18.

 

Corunna Downs

 

On 16 February 2017, the Atlas board approved the development of the Corunna Downs iron ore project in the WA Pilbara.

Construction of the project was forecast to cost between $47m and $53m, funded by operating cash flow from amendments to its loan facility.

It will comprise of four open pits, and be mined by conventional drill and blast, as well as truck and excavator mining.

It has a mineral resource of 64.1mt and reserves of 21mt, and once constructed, Corunna would add an initial rate of 4mtpa to the company’s total iron ore production over a five to six year mine life at a cash cost of between $37 per wet metric tonne (wmt) and $43/wmt.

The company said it was investigating ways to reduce cash costs and exploring potential upside opportunities to extend the mine life by exploiting both the below water table resources and the Glen Herring mineral resource area.

Atlas managing director Cliff Lawrenson said it was a strong vote of confidence in Atlas by its lenders, some of whom were significant shareholders.

“Corunna Downs, together with Mt Webber, will rebuild our production rate to approximately 12mtpa after Wodgina and Abydos cease production in the first and second half of 2017 respectively,” Mr Lawrenson said.

“The amendments to the facility will enable Atlas to capitalise on current and future opportunities provided by the stronger iron ore price.”


First shipments of ore from the project were planned to commence in the March 2018 quarter.

Corunna Downs will supplement the tonnage loss from mine completion at Wodgina and Abydos.


Financials

 

Atlas shipped 8.1mwmt of iron ore in H1 FY17; an increase of 1.2m-wmt at all-in sustaining costs of $52.30/wmt, $3.45 less than the previous half year period.

A rise in iron ore prices saw the company’s revenue balloon 34 per cent to $498.2m for H1 FY17, giving an after tax profit of $18.9m, a marked turnaround from an H2 FY16 loss of $114.3m.

This left Atlas with cash on hand of $134m at the end of the half which enabled it to pay down an additional $54m of debt at the start of the year and reduce its term loan to $118m.

Mr Lawrenson said the strong result marked a key turning point for Atlas on several levels.

“Importantly, we increased production and reduced costs, enabling us to take advantage of the improvement in iron ore prices,” he said.

“The strong first half positions us well as we transition from the Wodgina and Abydos mines and commence the development of the recently approved Corunna Downs mine over the remainder of the 2017 calendar year.”

Atlas retained its full year production guidance at between 14m-wmt and 15mwmt.

“The second half has commenced with challenging weather conditions, including rainfall levels around our mines well above those in recent years,” Mr Lawrenson said.

“However, we retain our FY17 production guidance range of [between] 14m and 15mwmt.

“Increasing price discounts on lower-grade ores are impacting realised prices, particularly on those cargoes which are hedged and do not benefit from the overall increase in headline 62 per cent [Fe] prices.

“However, we anticipate discounts should reduce over time to levels that more accurately reflect the relevant value of the various ores to the end users.”

Its full cash costs outlook rose $2 from its August 2016 FY17 guidance to between $50/wmt and $54/wmt, a reflection of higher freight rates and increased revenue-linked payments.