overview

This is my first post on the AGO forum, i spend a little while researching the company before making an investment yesterday, i have added my findings and reasons for entering AGO below, hopefully its of use to some posters, I'd also like some feedback and corrections to any figures, and/or information that i might have got wrong.

Enjoy,

AGO - Atlas Iron - Share price $3.87, Market Capital $2,125m (as at close yesterday)

Atlas Iron is located in Western Australia in the Pilbara, the company is in the middle of a take over of GIR (Giralia Resources) and is offering 1.5 share for every GIR share, or an alternate of 1.33 AGO shares plus 50c cash per share.
As of close yesterday AGO held 64% of GIR, the takeover is an off market, unconditional takeover.

AGO are a Iron ore producer as of about September last year which was their first shipment of ore, they are planning on production of 6mtpa initially and to be producing 12mtpa by the end of 2012.
In AGOs quarterly statement dating from Oct-Dec, it showed revenue of $133 million. The company is cash-flow positive at the moment, and the acquisition of GIR has now increased its DSO reserves to in excess of 430mt and is continually drilling to define a larger resource, aiming to add another 250-690mt of DSO resource. It also has 2 billion odd resource of lower grade magnetite resource.

The company has right to 15mtpa capacity at its Utah port, 19.5mtpa allocation through proposed south west creek facility and an indicative allocation of 10mtpa through proposed Anketel port.
Atlas' Mt Webber project (70% AGO) and GIR's Dalton's project (GIR 75%) have the potential to be developed together to further expand production to 22mtpa by 2015.

Production costs for AGO are at $45 per tonne and looking to decrease that to $40-43 after larger scale production, and the spot price of iron ore yesterday reached $199 per tonne, giving AGO a current margin of about $150 per tonne.

The fact that AGO is already currently in production and already bringing in some big money makes this a great opportunity to enter this company. Currently set to produce a further 3mt of iron ore till Jun2010 financial year which will bring in a further $300-$450m (after operating costs). That's a 14-21% return on its current market capital, though figures for a Net profit will need to take depreciation and amortization into account (Which are non-cash expenses at the end of the day).
The company has no debt and $143 million in the bank as at Dec31 2010.

Doing some quick calculations at 6mtpa, 12mtpa and 20mtpa the company should be sitting in a very strong position taking advantage of the all time high current iron ore prices.

6mtpa: Assuming iron ore price of $150 (current spot $190+)

Revenue 6mt x $105 (150 -45) = $630m
less sundry expenses * $120m
EBITDA = $510m
Depreciation and Amortization (15% of EBITDA) = $77
EPS (on 750m^ shares) = $0.58
Share price (P/E ratio of 12) = $7.51

12mtpa: Assuming iron ore price of $150 (current spot $190+)

Revenue 12mt x $105 (150 -45) = $1260m
less sundry expenses * $252m
EBITDA = $1008m
Depreciation and Amortization (15% of EBITDA) = $151
EPS (on 750m^ shares) = $1.14
Share price (P/E ratio of 13) = $14.85

20mtpa: Assuming iron ore price of $115 (current spot $190+)

Revenue 20mt x $73 (115 -42) = $1460m
less sundry expenses * $292m
EBITDA = $1168m
Depreciation and Amortization (15% of EBITDA) = $175m
EPS (on 750m^ shares) = $1.32
Share price (P/E ratio of 13) = $17.21

*Sundry expenses to include other expenses, which might include tax, a 20% figure given in any event.
^ 750m shares used, to account for GIR takeover, though figure of total shares post takeover not yet known.
Depreciation and Amortization of 15% of EBITDA; at this point just an estimate until the company gives a clear figure it uses in its financial statements to June 2011.

Note all figures and information used might not be 100% correct, so DYOR.

Any corrections to any information and/or figures is welcome.