Atlas Iron may have just lost its billionaire appeal and its shares are tanking

Image: Port Hedland Port Authority.
  • Access to potential new capacity at Port Hedland’s port facility was seen as a key reason behind recent interest by big miners in Atlas Iron.
  • However, the junior miner has received notice from the Western Australian Government indicating this access may not be as guaranteed as previously thought.
  • The news has sent Atlas shares in a spiral.

Atlas Iron may have just lost some of its appeal to the big miners.

Its shares fell hard today after the junior miner made an announcement saying it may not have the priority it thought it had to develop port facilities in the Pilbara.

The right of Atlas to develop and access berths at Port Hedland, Western Australia, the world’s biggest iron ore port, was seen by some analysts as key to a three-way struggle on the miner’s share register.

At the close, the shares in the takeover target were down 18.1% to $0.036.

Billionaire mining magnates Gina Rinehart and Andrew Twiggy Forrest have both taken key stakes, just under 20% each, in Atlas over the past week.

The holdings effectively block a takeover bid by a third player, Mineral Resources.

Atlas Iron and Mineral Resources, a Perth-based company with a diversified portfolio including significant lithium resources, in April announced a $280 million all scrip takeover.

The offer then was at 3.02 cents a share.

The deal, which would have seen Atlas’s Pilbara iron ore assets consolidated with that of Mineral Resources, is via a Scheme Implementation Deed to acquire all of the shares of Atlas.

However, today Atlas Iron Limited told the market that North West Infrastructure (NWI), of which it is a member, received notice from the state government which implies that NWI does not have a priority right to develop Stanley Point Berths in Port Hedland.

“The Minister has confirmed that Stanley Point Berths 3 and 4 are set aside for junior miners,” Atlas said.

“The Minister advises that the Pilbara Ports Authority will assess any application by NWI to develop these berths on its merits in accordance with the Pilbara Ports Authority’s standard port development processes.

“Atlas considers that this position is contrary to the previous stated policy of the Western Australian government and is considering its position with respect to this notice.”

North West Infrastructure is a joint venture between Atlas Iron (63%), Brockman Mining, and FerrAus.

The joint venture planned to develop a port facility with a capacity to export 50 million tonnes a year in the Inner Harbour at Port Hedland.

UBS, in a note to clients, says ownership in Atlas enables Twiggy Forrest’s Fortescue Metals to have input into the port development and perhaps get access to enable it to increase its shipped tonnage.

Last week S&P Global Ratings, citing a potential liquidity crisis, lowered its long-term issuer credit rating on Atlas Iron CCC from B-.

“The downgrade reflects our view that Atlas could face a liquidity crisis or breach its Term Loan B covenant trigger within the next 12 months, in the absence of other cash generative options the company is investigating,” said S&P.

“Atlas Iron’s underlying business and creditworthiness continues to weaken due to higher iron ore grade discounts and higher all-in-cash costs.

“As a result, Atlas Iron’s cash flows from operations are negative, which is likely to deteriorate the company’s cash position.”

Atlas Iron was an early victim of falling iron ore prices. Atlas in April 2015 announced it was mothballing its mines because it was costing more to dig up the ore than buyers were willing to pay.

The crash in iron ore prices was then driven by softening Chinese demand. Since then the company has restructured, global prices have surged and the miner is cash flow positive.

In the latest half year results, Atlas posted a statutory net loss after tax of $21 million. Sales were $308 million, down from $498 million.

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