JOHANNESBURG (miningweekly.com) – ASX-listed Atlas Iron, which has recently restarted its Pilbara operations, said on Wednesday that it would book an estimated noncash impairment charge of between A$130-million and A$160-million at the end of June, after updating the carrying value of its assets following a further reduction in iron-ore price forecasts.
Atlas said in a statement that the impairment estimate did not impact on the carrying value of its operating mines and only reduced the carrying value of its future growth assets, particularly the McPhee Creek project. The project is not currently earmarked for development as part of the company’s near-term strategy.
The asset impairment represented a reduction of about 15% in the carrying value of Atlas’s total assets. The impairment leaves the company with headroom in respect to the covenant attached to its term loan B facility, which requires it to maintain a ratio of total assets to secured debt of greater than two times. Atlas said that, following the expected impairment, this ratio would be about 2.38 to 2.45 times.
Atlas believes that the benefits of its recently announced operating strategy will offset the impact of the lower iron-ore price forecasts. Its revised strategy includes lower costs from contractor collaboration agreements and increased revenue from the introduction of lump iron-ore sales. The collaboration agreements, combined with lump product sales, will help to lower Atlas’s break-even costs at a benchmark IODEX 62% FE CFR China price of about $50 a dry metric tonne, based on full cash costs once the company achieves its targeted run rate of 14-million tonnes to 15-million tonnes a year by the end of the 2015 calendar year.
Atlas MD Ken Brinsden said the estimated impairment result reflected the company’s improved financial outlook in the wake of the successful collaboration agreements with key contractors across the operating mines.
“While any asset impairment is undesirable, this result speaks volumes about the positive impact the innovative collaboration agreements will have on the company’s operating mines,” he said.
“The significant boost to cash flow from these cost savings and the sale of lump ore has helped to underpin the value of our assets and in the process ensures that we are comfortably ahead of the requirements contained in our debt covenants.”
The final noncash impairment would only be known when the company’s annual report for the year to June 30, 2015, was finalised and signed-off by Atlas’s auditor in mid- to late-August.