Iron ore miner Atlas Iron Limited (ASX: AGO) has fallen well short of its goal of $180 million from shareholders and other investors, raising just $86 million.
It means Atlas is going to continue to struggle unless iron ore prices head higher – although it has bound its contractors to the failure or success of the company. Key contractors including transport contractor McAleese Ltd (ASX: MCS), mining operator MACA Ltd (ASX: MLD) and ports operator Qube Holdings Limited (ASX: QUB) were expected to pick up the tab for more than $40 million in the capital raising.
With $337 million in debt and $125 million in cash for a net debt position of $212 million, $86 million will only go part way to clear the debt deck. The issue with substantial debts remaining on the books is that Atlas will still need to repay them and interest expenses, whether it is profitable or not. That may tip the miner into a net underlying loss position – and already expects to writeoff between $130 and $160 million for the 2015 financial year.
While Atlas Iron managing director David Flanagan sounded a positive note, saying he was delighted with the immense vote of confidence in the company. "This is an outstanding result for Atlas shareholders, for the 700 people who rely on Atlas for work and for the State and Federal governments that use our royalties and taxes to provide essential services."
He added, "When this is combined with our new, lower cost base, which we are continuing to optimise, I am confident Atlas has a bright future."
I don't necessarily agree.
Sounds to me like the company was planning on receiving around $80 to $90 million – half what it had announced to the market, or you could call this capital raising a disaster.
With iron ore prices likely to remain volatile and under immense downward pressure, there's no relief in sight for Atlas yet.
