Atlas Iron, cutting costs as hard as it can to try to catch falling iron ore prices, is still having trouble getting its operations to be cash positive even after turning some of its contractor payments into profit sharing.
In its latest quarterly report, the junior miner says it cut costs by another 9% in the three months to the end of December to $54 a tonne.
But the average price it got for iron ore that quarter was $51 a tonne, down from $61 in the previous quarter.
That leaves a $3 gap per tonne between its costs and its revenue.
A short time ago, Atlas Iron shares were trading 6.7% higher at $0.014.
Compare Atlas Iron’s costs to that of Fortescue which is reporting December costs of $US15 per tonne ($A21).
A restructure of the Atlas Iron’s debt will help get the company into the black.
When the debt to equity deal with lenders is done, Atlas will have reduced its cash interest expense by more than 65% as result of a lower debt balance and reduced interest rate.
The debt restructure will reduce the company’s term loans to $US135 million ($A190 million) from $US267 ($A376 million) million and extend the maturity date to April 2021 from December 2017.
The term loan lenders would then have 70% of the company’s shares and options.
Atlas hasn’t quite got the support of all lenders yet. It had about 75% of them on side but if it doesn’t get unanimous support, the restructuring will be via a creditors scheme of arrangement. That would need a meeting of shareholder to approve the issuing of new shares.
Atlas managing director David Flanagan says iron ore markets remain challenging into January.
“However, the falling Australian dollar, low freight prices and further interim cost savings negotiated in December 2015 will assist Atlas in remaining competitive during completion of the debt restructure (following which further cost reductions will flow from lower cash interest costs),” he says.
At the end of December, the company had cash of cash of $A108 million.
In August, the miner posted a $1.4 billion loss for the 2015 financial year.
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 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.