atlas-growing nicely

wilson broker coverage...

Atlas Iron Limited
output on track. Port capacity in hand.


AGO expects to produce at a target rate of 2.4 Mtpa from the June 09 Qtr. We believe that AGO’s plans to increase access to port capacity will provide it with adequate capacity as the port facilities at Port Hedland are expanded and in line with AGO’s growth plans. Following our quarterly revision to commodity prices, our un-risked
DCF valuation and risked target price increased to $4.74 and $3.85 per share respectively. We retain our BUY recommendation for AGO with the share price valuing AGO on low operating cashflow multiples (<4.0) from 2011 onward and at a large discount to our revised risked target price.
DCF (unrisked) $4.74 12 Mth Price Target (risked) $3.85

Key Points
Atlas Iron Limited (AGO) mined 383,161 tonnes and shipped 300,326 tonnes of iron ore in the September quarter as the company continues to ramp up production at the Pardoo project. Production is on track with AGO’s goal of
a target rate of 2.4 Mtpa from the June quarter of 2010, and it is in line with our forecasts, which are unchanged. We understand that Pardoo is currently mining at a rate of 1.5 Mtpa.

The company has also exercised its right to use the Wodgina Mine Infrastructure (crushing, load-out and camp) facilities, and is on track to commence exports from Wodgina from the June quarter of 2010, beginning
at a rate of 2.0-2.2 Mtpa. Mining will begin in February 2010. Negotiations with prospective off-take partners are continuing, with initial contract signatures anticipated in the Dec 09 Qtr.

Recent drilling at the Anson deposit at Wodgina has returned intervals, from a selection of six holes, of between 50 metres and 92 metres, grading between 58.2% and 60.3% Fe and between 0.04% and 0.12% phosphorous. Drilling at Constellation and Dragon deposits returned intervals, from four selected holes, of between 32m and 42m with grades between 59.7% Fe and 61.5% Fe and phosphorus between 0.02% and 0.03%.

Resources at the Mt Webber project have been increased by ~34%, with Inferred Resources at Ibanez, Fender and Gibson of 43.690 Mt at 57.4% Fe and 0.09% phosphorus.

Following our quarterly revision to commodity prices on Monday our unrisked DCF valuation and risked target price increased to $4.74 and $3.85 per share respectively.

We retain our BUY recommendation for AGO with the share price valuing AGO on low (<4.0x) operating cashflow multiples from 2011 onward and at a significant discount to our revised risked target price ($3.85). We expect that
AGO will have access to adequate port capacity to export its ore in line with its ambitious growth plans, through its agreements and positions in relation to the FMG Anderson Point facility, the public Utah Point facility and the NWIOA South West Creek facility...