Atlas Iron All that is good news for the dogged junior iron ore...

Atlas Iron
All that is good news for the dogged junior iron ore producers that managed to survive the storm in iron ore pricing. They just might have a future, whereas back in January, at that low of $US39.60 a tonne, things were looking very bleak indeed.
And there is no better example of that than Pilbara producer Atlas Iron (AGO). Why, even the ratings agency Standard & Poor’s was moved last week to say that Atlas had an “outlook”, which is better than not having one at all.
S&P raised its long-term corporate credit rating on Atlas to CCC from SD and at the same time raised the rating on the company’s senior secured notes to CCC from D.
It said the rating actions followed the completion of Atlas’s debt and capital restructuring under which its principal loan amount was reduced to $US135 million from $US260m in December 2015. A lower interest rate also delivered annual savings of about $20m.
Now S&P — and no else for that matter — is not saying Atlas is out of the woods just yet. But there is no doubting that the restructuring has given it a fighting chance. It is also highly leveraged to even modest moves in iron ore prices. As S&P noted, that means its credit metrics also could swing significantly even with a small change in iron ore prices.
On S&P’s base case assumptions, which has iron ore prices (only) averaging $US40 a tonne for the rest of the calendar year, Atlas’s debt coverage would take a material turn for the worst. But S&P also noted that if iron ore prices can hold above the $US45 a tonne ($US11 a tonne below the current price), its credit metrics should improve significantly.
What is more certain is that based on actual March quarter figures and allowing for exchange rates movements, hedging contracts and so on, Atlas is probably now in a position where it its generating annual free cash flow of about $100m. That is interesting given at Friday’s closing share price of 1.5c, Atlas’ market capitalisation was $134m. It’s not one for the faint-hearted. But if the increased consensus on iron ore price expectations holds in to the back half of this year, the buyers at Friday’s price will have done well.