Junior iron ore miner Atlas Iron Limited (ASX: AGO) has seen its shares sink by more than 5% to 18 cents today.
It's not the only iron ore miner suffering though, with BC Iron Limited (ASX: BCI) down 4.7% to 50.5 cents and Arrium Limited (ASX: ARI) down 2.5% to 19.5 cents.
In its December 2014 quarterly report released today, Atlas noted that it had shipped 3.8 million tonnes of ore, with all-in cash costs falling to $66 per tonne, from $69 per tonne in September. The problem is that Atlas received an average selling price of $66 per tonne during the six months to December 2014 (due to receiving a discounted price based on ore quality.
Still, Atlas remains positive, with the lower Australian dollar, lower oil prices and falling ocean freight rates all helping to boost cash flow in the second half of the 2015 financial year. Speaking of cash, Atlas is sitting on a cash balance of $169 million and says it has minimal further capital expenditure requirements.
The West Australian state government has also played its part, announcing in December that it would provide royalty relief in the form of a 12 month 50% rebate on eligible royalties, while the iron ore price remains below an average of $90 per tonne. The concession is repayable though.
With costs above $80 per tonne early in 2014, clearly Atlas had plenty of work to do to reduce its operating costs. All-in cash costs are expected to fall to between $63 and $66 per tonne in the six months to June 2015 as Atlas expects to ship between 12.9 and 13.5 million tonnes of iron ore.
Now all Atlas needs is for the iron ore price to appreciate. Unfortunately, that appears unlikely. Earlier today, Rio Tinto Limited (ASX: RIO) announced that it was targeting production of 330 million tonnes in 2015, up from 295 million tonnes in 2014. Demand for ore remains weak, due to credit restrictions and falling steel prices, and supply continues to expand.
Atlas may have to slash much more in the way of costs to remain profitable in the near term.
