Australian iron ore miner Atlas is back.
The miner managed to strike an agreement which cuts its costs to break-even when iron ore prices are at $50 a tonne. The commodity was sitting at $US61.20 a tonne overnight.
Under the two year agreement, Atlas’ contractors, which include subsidiaries of MACA Limited, McAleese Group and QUBE Holdings Limited, will receive an uplift in their rates if the iron ore price rises. Atlas said if it gets less than $AU48 a tonne, its C1 cost of production (which includes contractors and company costs) will be $34 a tonne. The agreement also means Atlas will pay $0.5 for each dollar of price movement up to $60 a tonne.
Atlas will also be obliged to produce a minimum of 750,000 ore tonnes per month. The miner said it is targeting between 800,000 to 900,000 ore tonnes a month.
Where the iron ore price generates positive operating cashflow, Atlas will pay 25% of it from the Abydos and Wodgina mines to the participating contractors.
Atlas chairman David Flanagan described the result as “outstanding” and thanked everyone involved.
“The agreements are the result of the widespread commitment shown to Atlas’ success and overwhelming desire to see the company and all its stakeholders prosper today and in the long term,” he said.
“Our production costs will be very competitive against other global supply. This will underpin our ability to generate strong cash flow which, in combination with the capital raising, will provide the Company with a robust balance sheet that can withstand the sorts of iron ore price volatility we have witnessed in recent times.
“It will also pave the way for further increases in production, enabling us to deliver strong returns to all who have played a key role in ensuring the success of an important Australian company.”
A planned capital raise is also in the works via a share placement and shareholder participation from a number of shareholders, institutional investors, contractors and directors. The miner will seek shareholder approval on June 19 for the raise.
The crashing iron ore price, driven by softening Chinese demand sent Atlas into a trading halt in early April when the miner announced it would begin mothballing its WA operations and cease exporting.
At the end of March, Atlas had $327 million gross debt and a cash balance of $125.5 million.
Today it announced full production would resume at all three of its mines. Mining has already begun at Abydos, with its Wodgina pit operations due to come online next week. Its Mt Webber mine will resume exports in the September quarter.
Once everything is back up and running, the miner expects it will produce between 14 and 15 million tonnes by the end of the year. The miner has also managed to fix its iron ore prices with a three month outlook, using a combination of strategies including hedging.
The falling iron ore price has been a mounting problem for Australia’s economy. On Tuesday it was revealed the lower commodity price had ripped a $20 billion hole in the federal budget.
Atlas expects shares will resume trading after the capital raising.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.