Atlas Iron (AGO) will start winding down its WA iron ore mining and export operations this week after deciding to quit the business because of the current low prices.
The company’s decision, announced on Friday, was not unexpected after Atlas asked for trading in its shares to be halted to allow it to work out its immediate future as an iron ore miner and exporter.
Atlas’s decision will hit other companies supplying services to Atlas. These include haulage group McAleese, which trucks iron ore from Atlas’s mines to Port Hedland, Qube Logistics, BGC Contracting, MACA Mining and Mineral Resources’ subsidiary CSI.
Atlas’s announcement last Tuesday came the same day as the global spot price for iron ore price plunged to a 10-year low of $US46.70. The price has fallen 60% per cent in the past 12 months.
Atlas said while it had reduced its break-even point to below $US60 a tonne, "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".
Atlas says it will cease mining and crushing at its Mount Webber project this week, while mining and crushing at the Abydos project is scheduled to cease within the next fortnight. Operations at the Wodgina mine are expected to be completed in late April.
The company has 500 staff with contractors across its mining operations and another 75 people in its Perth office.
AGO 5Y – Iron ore rout claims Atlas
“To suspend our operations, with the impact that will have on so many committed and talented people, is an extremely difficult decision,” CEO Ken Brinsden said in Friday’s statement.
"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."
Atlas said on Friday it will continue discussions with its debt holders, who are owed about $330 million, over the potential options for restarting its mines "whether through further cost reduction where possible and/or improvements in the iron ore price".
Market attention however, will remain on Fortescue Metals which releases its March quarter production report on Thursday.
Forward iron ore prices have since tumbled below $47 for deliveries all the way until the end of 2017, depriving nearly all miners of any chance of establishing hedges at or above breakeven levels during that period.
A combination of factors brought about the recent capitulation in forward prices, most notably news that China plans to subsidise its iron ore sector to protect its flagging steel industry. Subsidies would help keep mines open and keep supplies flowing.
Aggressive shipments from Australian and Brazilian exporters have also weighed on forward prices.
As prices fall even further, “it will be an issue of cash flow, and those miners without the cash to ride out the storm are going to go under,” said Jeremy Platt, analyst at London-based steel consultancy MEPS.
Only three of the world’s top 10 largest iron ore miners are estimated to remain profitable at those prices, with Rio Tinto and BHP Billiton projected to have breakeven costs of around $35-36 a ton and Fortescue estimated at around $44 a ton, according to UBS.
All other miners, including the world’s largest, Vale, are estimated to have production costs above $50 a ton, and so are now faced with a quandary with nearby as well as deferred prices entrenched below that level.
Market participants say they are on the lookout for signs that high-cost producers outside of China may accelerate cutbacks in production amid deteriorating cash flows and limited revenue potential.
