Atlas Iron says it could go under without a debt-to-equity deal with its lenders

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Miner Atlas Iron, an early victim of falling iron ore prices, says there’s a high risk of going into voluntary administration if a debt restructure isn’t approved by shareholders.

The debt-to-equity proposal would cut what Atlas owes to lenders to $US135 million ($176 million) from $US267 million ($348 million) and extend the maturity date to April 2021 from December 2017.

The cash interest Atlas pays on the debt would be cut by about 65%, a saving of $20 million a year.

The Pilbara miner will issue new shares and options, giving the lenders a combined stake of about 70% in the company.

The companies shares fell further today, dropping 13% to $0.02.

“This deal is necessary if we are to secure a strong future for Atlas, giving our company added resilience to withstand iron ore price volatility and maximising its potential to once again generate strong returns for shareholders,” chairman Cheryl Edwardes wrote in a letter to shareholders.

“I appreciate that some aspects of the debt restructuring proposal may seem complicated. But the key objective is very simple: to deliver the best possible outcome for Atlas and its shareholders given the difficult position in which the company finds itself as a result of falls in the iron ore price.”

Edwardes says many shareholders will be extremely disappointed at the prospect of their investment being further diluted by the issue of shares. However, the alternative would bring “potentially dire consequences” for shareholders.

The Pilbara miner started mothballing its mines in April last year because the cost of digging the ore was greater than the price on the global market.

It then restarted after doing deals with contractors and cutting costs hard. It also raised $87 million from shareholders to give the company a cushion against price fluctuations.

For the six months to December, production was steady at 6.9 million tonnes but revenue fell 17.4% to $372 million.

Atlas recorded a statutory loss of $114.3 million after non-cash asset impairments and inventory write-downs of $43.9 million and restructuring costs of $7.1 million. The company posted a loss of $1.08 billion in the same six months last year.