Subsequent to the end of the financial year MACA received shares and options in Atlas Iron Limited for a subscription value of approximately $4.79 million. Upon the shares relisting, MACA transferred amounts outstanding to available for sale investments after booking an impairment on debtors of $0.76 million. MACA’s exposure is capped at $1.37 million under an insurance policy.
Does this mean worst case scenario they'll get a $3.42 million profit from the shares and options, assuming their cost basis was "0"? Or maybe it means the maximum loss they'll realize is $1.37 million.
Under the collaboration agreement between AGO and contractors, "the contractors can receive an uplift in their rates as the iron ore price rises, and receive a total of 25% of applicable positive net operating cash flows." Below AUD$48/tonne FOB, the contractors appear to receive fixed compensation per tonne of iron ore. Above $48/tonne up to $60/tonne, there is additonal "cost recovery" equal to $0.50 for each dollar of price movement. The contractors can terminate the contract with 30 days notice if "forward sales that generate positive operating margins are not possible or minimum volumes have not been delivered in the previous or coming month." This is described in detail in AGO's announcement of 15 May, 2015.
Unless MLD gets caught with receivables it can't recover from AGO, the downside is probably limited.
MLD Price at posting:
73.0¢ Sentiment: Buy Disclosure: Held
