Home > Staying STRONG in the Pilbara: Atlas Iron in the spotlight

Staying STRONG in the Pilbara: Atlas Iron in the spotlight

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Profits of Australia's miners are dropping like flies this reporting season, with Pilbara iron ore miner Atlas Iron a recent addition to the impairment party. 

Lower iron ore prices coupled with a strong Australian dollar has hit iron ore miner Atlas Iron where it hurts, seeing it post a net loss of $245 million for 2013. 

Releasing its 2013 annual results in August, the miner's underlying profit after tax was $13.7 million, plummeting 81 per cent from $72.2 million.  

Slumping profits prompted Atlas Iron boss Ken Brinsden to dismiss takeover rumours, as investors expressed sceptisim over the company's expansion plans. 

"As to what people might consider of Atlas from the point of view of a takeover, in essence we always stand ready to defend the company," Brindsen said. 

"There's a lot more value to be added." 

The miner will have a total of five mines coming online in the next five years, announcing plans to develop its Mount Webber iron ore mine, located 230 kilometres from Port Hedland, in July. 

Atlas shipped 7.4 million tonnes of iron ore in 2013, but falling profits show just how susceptible the mid-tier iron ore player is to the rise and fall of commodity prices, which fell to a near-three year low of $US86 per tonne last September. 

The miner said on average it received $US105.84 a tonne for its iron ore, down from $US125.17 a tonne the previous year.  

"Commodity prices during the year were impacted through a slowdown in Chinese demand and tightening credit in China, combined with growth in supply of iron ore," the company said. 

Europe's debt crisis and US economic uncertainty also hit global demand for steel, Atlas explained. 

Atlas has also written $458.1 million off asset values of its undeveloped Horizon I and Horizon II exploration projects, adding $245 million to its full year loss. 

Despite the raft of writedowns Atlas announced an unfranked dividend payment of 3 cents a share and was positive about iron ore's future, even in the face of a slowing Chinese economy. 

Recognising it has been a challenging year for the company, with lower iron ore prices, production issues and the company's share price halving since February, the company stated it is encouraged by rebounding iron ore prices and the Australian dollar's recent drop below parity with the US. 

"The Board is confident in the company's ability to continue to generate strong cash flows for the medium term outlook in iron ore," he said. 

"And for that matter, the money we're going to be requiring to reinvest in the business and as a result of each of those factors, the Board has resolved to continue to pay a three cent dividend." 

Despite the blowouts revenue for the year grew to $695 million, up from $618 million achieved in the previous financial year and as of June 30 had $417 million in cash in the bank. 

Pilbara problems 
Setting ambitious export targets, Atlas is aiming to ship more than 10 million tonnes per annum next financial year with cash operating costs between $49 and $53 a tonne. 

But the company is yet to announce a port and rail infrastructure solutions which will be required to develop its Horizon projects. 

Brinsden said Atlas isn't feeling any pressure from investors to come up with a rail transport solution. 

"We have a good understanding of the sorts of commercial terms that can secure an infrastructure solution," he said. 

"We are making material progress." 

But analysts concede the ambitious production targets can only be met with significant infrastructure investment. 

Rail access has long been a sore point for Pilbara miners, and Fortescue Metals Group has previously failed to secure a deal to share access on rail assets owned by BHP Billiton and Rio Tinto. 

Late last year FMG won a High Court appeal over access to Pilbara rail networks, eyeing off Rio's Hammersly and Robe River lines, as well as BHP's Goldsworthy and Mount Newman networks. 

Atlas Iron has previously flagged constructing the Pilbara's first multi-user rail line, in an infrastructure project that Brisden has said would require assistance from many customers to make it financially feasible. 

"We've made no secret that Atlas is not really in a position to justify rail in its own rights, so I would say that if a network like Aurizon is going to be able to get up in the Pilbara then there's no doubt in my mind it needs multiple customers," Brinsden said. 

"It's fair to say we've got discussions going on with quite a few people and at the end of the day the Aurizon solution might very well constitute it: a fantastic solution for the Pilbara as a whole." 

Junior miners Brockman Mining and Flinders Mines in July signed a supply, infrastructure co-operation agreement in the Pilbara, saying they will work together on a transport solution that will get their product to market. 

Brockman signed a three year agreement with Aurizon that will see the rail operator develop and operate rail and port infrastructure for the company's two Pilbara iron ore projects. 

Aurizon will operate all rail, rolling stock and related infrastructure required by the mine projects and develop port facilities. 

The two deals add to the mounting battle over transport infrastructure in the Pilbara. 

Brockman has previously attempted to gain access to Fortescue Metals Group's railway using third party access laws but according to The West Australian the bid has been bogged down by Western Australia's regulatory process, forcing the miner to look at alternatives. 

But according to WA Premier Colin Barnett the fight over rail access is holding projects up more than government red tape. 

Barnett previously said resource companies fighting over sharing infrastructure is one of the biggest hurdles in keeping projects on time and budget. 

He said the Department of State Development spent more time dealing with disputes between resource companies than it did solving regulatory delays. 

BHP Billiton and Rio Tinto's railways in the region were built before WA introduced third party access laws. 

Fortescue is attempting to sell down its stake in its railway, with some expecting Atlas Iron to negotiate a deal to access the infrastructure to accommodate the growth of its projects in the region. 

Investors' calls for Fortescue to reduce its $US10 billion debt are fuelling the company's move to off­load its minority interest in its port and rail assets which are expected to deliver $US3 billion to the company. 

The sale, which was expected to be finalised by June 30, has been pushed to the September quarter. 

When Brockman asked for access to its Pilbara rail line, the Fortescue owned TPI gave a floor cost of $73.4 million and a ceiling cost of $575.6 million. 

Adding to the infrastructure debate in the region is Gina Rinehart's Roy Hill Holdings, proposing to build its own railway rather than purchase access to someone else's. 

Brockman chief executive Russell Tipper said a memorandum of understanding with Flinders is a step forward. 

"The potential aggregation of tonnages ensures a critical mass that could further enhance the economic viability of any proposed shared infrastructure solutions for junior iron ore miners in the Pilbara," he said. 

Flinders executive chairman Robert Kennedy said while the deal is non-binding, its completion will benefit both companies. 

"It is Flinders' intention to work with Brockman towards a binding terms sheet that aggregates the Flinders product with the Brockman product," he said in a statement.

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