Atlas Iron's Mount Webber mine already producing results
As was recently written in Mining Global’s sister site Business Review Australia, Atlas Iron has restored its mining operations at its Western Australia Mount Webber mine.
The mine was previously closed in April after the price of iron ore fell considerably. Now with Atlas back up and running with all three of its mines back in production, the company’s year-end production rate goal of 14-15 Million tonnes per annum (Mtpa) appears attainable.
According to the company, Mount Webber is expected to produce six million tonnes of iron ore for each of the next eight years due to significantly improved margins compared to prior to operating suspension.
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At its other Pilbara region mines, Wodgina and Abydos, Atlas agreed to a contractor collaboration method, where contractors can earn a bonus in their rates once the iron ore price increases. The companies would be entitled to 25 per cent of applicable positive net operating cash flows.
Atlas has made attempts to reassure investors of its financial stability, undertaking a $180 million capital raising. In a recent market update, Atlas said 2.06 million wet metric tonnes (70 per cent) for the September quarter and 0.4 million wmt (10 per cent) for the December quarter were subject to price insulation.
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Atlas said it has ‘put’ options to provide a floor price on 400,000 dry metric tonnes of iron ore, which will guarantee a price between US$53-54 a tonne if exercised. A ‘put’ option gives the company the right to sell to a buyer at these prices, so it can still benefit if prices stay above those levels.
In addition, the company has about 900,000 wmt of future sales locked in at a certain price, which Atlas says equals a starting price of about US$59 a tonne. It will earn even more revenue if the Aussie dollar falls further.
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Another 1.1 million wmt of sales are covered by a price floor and price ceiling agreement, as the Atlas will receive the equivalent of at least US$50-52 but no more than US$55-60 dry metric tonnes regardless of spot pricing. This deal decreases the company’s exposure to market instability while it finishes up its capital raising and ramp up in production.
However, while these deals give Atlas a safety net, there won’t be much protection past October.
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