Struggling miner Atlas Iron (AGO) says it has protected its finances against a falling iron ore price – but that was up till yesterday morning when the price dropped to $US49.60
Overnight Wednesday the price plunged another 10%, to $US44.59 a tonne (according to Metal Bulletin). That’s the lowest price on record dating back to May 2009.
Both that price and the Tuesday level are below Atlas’ break even iron ore price of $US50 that managing director David Flanagan quoted in a letter to shareholders last week.
Mr Flanagan yesterday moved to reassure investors of the company’s profitability by outlining its hedging strategies to combat an iron ore price below its operating costs.
Atlas says it has already cut its breakeven price from $US60 since April, but there are doubts about whether costs in the sector can be further cut or how sustainable the lower costs are generally.
The Wednesday night will hit the sector hard again today, forcing another sell off on the ASX.
Mr Flanagan said Atlas had locked in 70% of its planned output in the September quarter and 10% in the December quarter to some sort of price protection above that $US50 breakeven level.
That includes put options on sales at $US53 to $US54 a tonne, fixed price contracts and sales locking in a floor and ceiling price.
Atlas said it would also be helped by the weakening Australian dollar to below 75 US cents.
But the company warned that it is not protected beyond the end of December and the ability to lock in prices and what they would be was unknown.
The latest update is part of the company’s selling of its $180 million capital raising.
The falling price of iron ore forced Atlas to suspend production at its three Pilbara mines in WA, but struck a deal with its suppliers and bond holders (most are in the US) to cut costs and stay afloat and is mining again.
Atlas suspended trading in its shares 12 cents, with a market cap of just $110 million, down from $4.22 and nearly $3.9 billion four years ago. They remain suspended until the fund raising is finished.
