Once a star with a stockmarket value of $4 billion, Atlas suffered a near-death experience in 2015 when a low iron ore price and high operating costs forced the company into a debt-for-equity swap with its creditors.
That deal exploded Atlas’s share register tenfold, from 915 million shares in 2014 to 9 billion shares today, with the dramatic increase in the number of shares on issue a factor in the stock spending most of 2016 at 1c, or less.
Since early October, as the iron ore price staged its miraculous recovery courtesy of Chinese demand, Atlas has been moving up, touching a 12-month high of 5c a price which values the company at around $400 million.
Atlas has a long way to go before it becomes rebalanced, thanks to last year’s monster share issue which left 70 creditors (mainly service providers and investment funds) owning 70 per cent of the stock. Many of them should be seen as potential sellers.
Set against the problem of an unstable share register is the improving financial health of the company, which is trading profitable. Atlas made a hefty ($54m) debt repayment last month and earned a credit rating upgrade from Standard & Poor’s.
At the current iron ore price Atlas is posting strong profits and preparing to develop a new mine at Corunna Downs, which will replace the ageing Wodgina operation. Because it trucks ore to Port Hedland, an expensive way of handling a bulk commodity, Atlas will never be able to match the low costs of the bigger miners with their railway systems.
But if the iron ore price stays high, or just slips back to the $US67 forecast by ANZ, Atlas will achieve its primary aim of survival, and with Corunna Downs to come it should achieve its goal of having more cash than debt by midyear.
Mount Gibson Iron
Seven months ago, Mount Gibson was trading at 27c and sitting on a cash pile of $400m from mining operations and a big insurance payout.
Now the stock is trading at 50c and the cash pile has grown to $447m, roughly in line with the company’s recent market value.
In horseracing terms, Mount Gibson is a stayer, having survived the iron ore price crash and the collapse of a retaining wall that led to the flooding of its flagship mine on Koolan Island off WA’s Kimberley coast.
Ongoing iron ore production is coming from a series of small but high-grade deposits near Geraldton in WA with the Extension Hill pit recently worked out and the new Iron Hill scheduled to start in the current quarter.
A wildcard in the company’s hand is a second insurance payout for business interruption at Koolan Island, topping up the $86m already received for property damage.
Investment banks have a mixed view of Mount Gibson, with Macquarie highlighting the 40c per share cash backing for a stock trading at 50c.
Flinders Mines
Until very recently not many investors had heard of Flinders Mines, a stock with a plan to become a WA iron ore miner but with a share price of less than 3c and a market value of less than $100m.
That changed suddenly when its biggest shareholder, New Zealand-based Todd Corporation, unveiled plans for a major iron ore project near Karratha on WA’s northwest coast.
The Balla Balla project of Todd is not new.
The ore deposit has had several owners over the past decade, include Atlas Iron, and will be expensive to develop and operate because it contains a low-grade form of iron called magnetite, the same material which has caused former billionaire, Clive Palmer, and his Chinese partner problems at their Sino Iron project.
The proposal which Todd unveiled for Balla Balla includes infrastructure assets that could provide a railway to link the iron ore assets of Flinders with the port needed for Balla Balla.
This a very ambitious scenario for both Balla Balla and the Flinders proposal, and some of the current interest is probably related to the WA state election early next month.
Speculators, however, like the story and have pushed Flinders shares up to a 12-month high of 8c, valuing the stock at $250m.
BC Iron
Three months ago BC Iron, a company effectively controlled by media owner Kerry Stokes, was showing every sign of losing interest in iron ore, with a management presentation at the November annual meeting suggesting a diversion into agriculture, industrial minerals and/or goldmining.
Whether that happens will be a reason to watch the company. BC — now trading at 28c against 16c at the start of the year — recently sold a small mine at Nullagine in WA’s Pilbara, has plans for a much bigger mine (and associated port) at Buckland and continues to share the profits from a joint venture mine operated by Mineral Resources at Iron Valley.
The iron ore recovery is an opportunity for BC Iron to push ahead with the Buckland project or do something else with its $32m in cash.
AGO Price at posting:
4.7¢ Sentiment: Hold Disclosure: Held
