The dramatic plunge in iron ore prices (to a new low of just $US46.70 a tonne overnight Monday) has forced Atlas Iron (AGO) into a wholesale review of its business and the suspension of trading in its shares on the ASX.
That in turn has raised the prospect the company could become the highest profile casualty in Australia so far of the more than 60% plunge in the global iron ore price in the past year.
Its market value has plunged to just $110 million at the close before Easter, from almost $2 billion three years ago. The shares have fallen from $4.08 three years ago to just 12c last Thursday.
Atlas told the ASX yesterday that it was reviewing its entire business and considering asset sales (though who would be a buyer is problematic).
Atlas pointed out that the price of iron ore has fallen 24% since it released its interim results in late February when it reported a loss (including write downs) of $1 billion.
And even though it has cut costs since then, the speed of the price fall threatens the company’s viability, judging from this morning’s statement to the ASX.
Much of the market’s attention has been on Fortescue’s (FMG) struggles to cope with the falling iron ore price (down 10% in the past week alone), but Atlas now seems to have moved ahead of it in the potential casualty list.
Atlas says it will let the market know of its decisions in the next two weeks.
A world of pain for iron ore miners
One of the proposals could be to put the WA iron ore operations on a care and maintenance basis until prices and demand recover. Another could be to close down completely and put the company into administration or receivership.
Atlas has (at last report) $327 million of debt and around $169 million in cash.
Atlas shares closed at 12c before Easter, more than 50% down from the most recent high of 27.5c in early January.
Atlas said it will be reviewing the company’s operations, financial outlook, asset sale opportunities and capital structure, with investment bank Lazard assisting the company.
"Atlas has already commenced discussions with a number of its stakeholders in relation to various initiatives intended to further reduce costs and preserve value,” the miner said in a statement.
Bondholders in Atlas, which are mostly US-based, are secured creditors in the miner and will have a big say in the outcome. They will have to weigh up whether it will be better to put the company into administration to protect their position, or to allow it to scale back and try and continue trading.
But at current prices that looks very unlikely given the company is losing money for each tonne of ore it produces.
The $1.1 billion interim loss in February included an $834 million impairment on its Pilbara assets, especially after problems at the mine last year.
