Thursday, 18 October 2012 10:54
MELBOURNE: Weak iron ore prices have slammed Australia's smaller iron ore miners, forcing one of the stronger juniors to take on debt for the first time, while another slashed jobs and cut back mining operations to reduce costs.
Atlas Iron, Australia's no.4 iron ore miner, said it had lined up a fully underwritten term loan of $325 million, tapping its first major debt facility to ensure it can fund its expansion at a time when cash flows have been crunched.
"This facility will give Atlas the luxury of being able to develop additional production capacity with confidence and funding flexibility," Atlas Managing Director Ken Brinsden said in a statement.
Atlas also said it was cutting 27 jobs, mostly in exploration and evaluation, to help cut costs, while another 23 roles have been moved to other parts of the business.
It said its cash operating costs would be $1-2 less than earlier flagged, at $46-50 a tonne free-on-board, partly as a result of the cuts.
Atlas tweaked up its forecast for exports by 200,000 tonnes to 7.2-7.7 million tonnes for the year to June 2013, saying it would sell some product that it had originally planned to stockpile.
"While iron ore prices have been volatile, Atlas continues to receive strong demand for its standard product from a range of customers both inside and outside China," Brinsden said.
Atlas had been viewed by investors as being in a relatively strong position with no debt, relative to Fortescue Metals Group , which last month slammed the brakes on its expansion plans, slashed jobs and scrambled to refinance debt following a sharp and prolonged slide in iron ore prices.
Iron ore prices slid to a three-year low of $87 a tonne last month but have since rebounded to $115. They remain well below a high of $149 earlier this year, with iron ore producers warning they expect prices to remain volatile in the near term.
The price slide has hit everyone, but the mega miners -- Vale, Rio Tinto and BHP Billiton -- with the lowest-cost mines, can still make a profit and are going ahead with expansions, while smaller, higher cost producers are under pressure to cut costs and hold up new projects.
Funding is key for Atlas to achieve its target of doubling capacity to 12 million tonnes a year by December 2013. The company has ambitious plans to expand output to 46 million tonnes a year by 2017.
Atlas transports its ore to port by truck, but will eventually need a rail line, which it is studying in partnership with Australia's top coal-freight operator, QR National and Brockman Resources.
Atlas shares were suspended from trading, pending the announcement.
They last traded up 5.3 percent on Thursday at A$1.58 on a strong day for iron ore miners, partly on the back of data from China that suggested the slowdown in the world's biggest iron ore consuming economy had bottomed.
Rival Mount Gibson Iron soared 17 percent on Thursday after announcing it was slashing 270 jobs and slowing mine operations to cut or defer about A$120 million to A$150 million in capital and operating costs.
However, Mount Gibson stuck to its sales target of 8-8.5 million tonnes for the year to June 2013, saying it would ship ore from its stockpiles.
It was also a strong day for Gindalbie Metals Group , which jumped as much as 16 percent after loading the first shipment from its A$2.57 billion Karara iron ore project, in the mid-west region of Western Australia.
Investors were relieved that the cost of the project, which is targeting 8 million tonnes a year of magnetite or and 2 million tonnes a year of hematite, had not increased any further, averting the need to raise capital.
The magnetite iron ore project is co-owned by Angang Steel , the listed arm of China's second-largest steel producer, Anshan Iron and Steel Group.
Copyright Reuters, 2012