Atlas Iron will soon be debt free as it rides the commodity wave

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Atlas Iron, which 18 months ago was preparing to shut down as iron ore price sunk, plans to be debt free later this year as strong commodity prices flow through to its bottom line.

In a quarterly report, the iron ore miner says its cash on hand was $134 million, up from $95 million in September, on the back of stronger iron ore prices and a lower Australian dollar against the US dollar.

A short time ago, the company’s shares were up 18.5% to $0.032.

The significant increase in cash came after making principal and interest payments of $20 million during the December quarter and $3 million in repayments to the Western Australian Government under the royalty relief program.

Atlas repaid $54 million of debt in the December quarter, reducing its US term loan debt to $A118 million from the A$180 million owed in May when the Pilbara miner restructured its debt by issuing new shares and options, giving its lenders a combined stake of about 70% in the company.

Interim managing director Daniel Harris says the company has enjoyed a remarkable financial turnaround.

“Atlas is now on track to be in a net cash position by the middle of this year,” says Harris.

The miner 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.

The miner then did a deal with suppliers and cut deeply into costs, keeping operations going on very slim margins.

However, in 2016 the price of iron ore surged 81% on the back of production cuts, increased infrastructure investment and strength in Chinese property prices. Today it is trading at $78.30 a tonne.