Atlas Iron shares have rallied after the miner posted a $1.4 billion loss for the 2015 financial year.
A short time ago, the shares were up 3.3% to $0.031.
According to ASIC, 43 million shares were in short position, about 1.6% of the company. Ahead of the results, more than 9% of the shares were short last month.
The full impact of the large and sustained price falls in iron ore on small miners is revealed in the detail of the Pilbara miner’s latest results.
The response to prices being chopped in half over a year was to cut costs and sell as much as possible, trying to make up the shrinking revenue with volume.
Atlas was able to find cost savings of $150 million and export a record 12.2 million tonnes in 2015, up 12% from 10.9 million tonnes the year before.
The company was able to cut the cost per tonne by 16% to $A64.23 from $A76.80.
However, nothing could catch the falling price. The company’s results show that revenue fell 35% to $718.5 million over the 12 months.
The loss includes write-downs of $1.077 billion and restructuring costs of $52.8 million.
“Yes, the changing iron ore market has meant we have had to take large asset write-downs and that hurts,” says Atlas managing director David Flanagan.
“While Atlas can’t influence the iron ore price we have moved the needle on our cost base and are now seeing the results of the contractor collaboration model.
“The combined efforts of our people, contractors, WA Government and of course with the support of our shareholders means we are not just stronger than we were, we are much stronger than many of our competitors and we plan to keep it that way.”
The Pilbara miner started mothballing its mines in April because the cost of digging the ore was greater than the price on the global market.
However, it re-started after doing deals with contractors and cutting costs hard. It also raised $A87 million from shareholders to give the company a cushion against price fluctuations.
Before the raising, Atlas had $73.3 million cash in the bank after investing $81 million at its Mt Webber mine and repaying of debt of $17.7 million.
Atlas now aims to be break even at $US50 a tonne. Recent falls in the Australian dollar against the US dollar are helping.
The Atlas Iron 2015 results in detail:
All miners have been cutting costs and increasing tonnages but the advantage lies with the bigger players. BHP is looking at a cost per tonne of $US16 in 2016.
Atlas Iron has been negotiating forward sales, ensuring some certainty over prices and smoothing bumps in the iron ore market which responds to any news about the health or otherwise of China, the biggest buyer of the ore.
While full details haven’t been revealed, Atlas has sold tonnages over the September quarter (about 70% of expected output) and about 10% of sales in the December quarter.
Flanagan says the pricing strategy has reduced Atlas’ exposure to price volatility.
“This approach provides Atlas and investors with greater certainty in respect of the prices we will receive and therefore the extent of our margins and cash flows in the near-term,” he says. “At the same time, we have retained some exposure to iron ore price upside.”
Atlas must also keep on eye on its new liabilities to its suppliers and contractors under a two year agreement.
The contractors, which include subsidiaries of MACA Limited, McAleese Group and QUBE Holdings Limited, get paid more if the iron ore price rises. Atlas will pay $0.5 for each dollar of price movement up to $60 a tonne.
And when Atlas is generating positive operating cashflow, it will pay 25% of it from the the Abydos and Wodgina mines to the contractors.
But if Atlas gets less than $A48 a tonne, contractors get less, bringing down the cost per tonne.
Atlas is also obliged to produce a minimum of 750,000 ore tonnes per month. The miner is targeting between 800,000 to 900,000 tonnes.