Atlas Iron plans to write-down the value of its Pilbara assets by between $700 million and $900 million, after telling the market it is operating just at break-even before restructuring costs.
Atlas Iron plans to write-down the value of its Pilbara assets by between $700 million and $900 million, after telling the market it is operating just at break-even before restructuring costs.
The iron ore miner said its cost reduction program had delivered ‘all-in cash costs’ of approximately $A65 per wet metric tonne (wmt) in November.
This excludes interest expense, capital spending and restructuring costs.
Atlas also affirmed all-in cash cost guidance for the 2014-15 financial year of A$64-68/wmt, and said it was targeting the lower end of that range.
“As a result of cost reductions delivered to date, Atlas has materially lowered its cash breakeven price over time, as compared to the commonly quoted indices for delivered pricing (IODEX 62%),” the company said in a statement.
“November production costs combined with the current exchange rate and product discounts sees Atlas’ normalised EBITDA breakeven further reduced to approximately US$68/dmt, IODEX 62% basis.”
Today's announcement coincided with an overnight fall in the benchmark iron ore price to a near five-year low of just US$68 per tonne, according to The Steel Index.
The company said the write-down followed a review of its Horizon 1 and 2 exploration and development projects, in light of the current iron ore price "and the subdued expectations of market participants".
It is the second write-down of these assets, after a $455 million pre-tax write-down announced in February 2013.
Atlas said that after the latest write-downs it would remain in compliance with its debt obligations.
It said capital expenditure "will be minimal on a go forward basis in the current market".
The company indicated that its future costs were likely to be helped by state goverrnment royalty concessions and reductions in sea freight and diesel prices.
The Barnett government announced last week that mid-tier iron ore miners - such as Atlas, Mt Gibson Iron, Mineral Resources and BC Iron - could apply for a 50 per cent rebate on royalty payments for up to 12 months.
Atlas said this would improve its cash flow by approximately $A2.00-$A2.50/wmt, subject to price movements and final criteria for the royalty relief.
Managing director Ken Brinsden said the cost reductions achieved already meant "Atlas has a very strong leverage to even a modest uptick in iron ore pricing".
More to come ……