Sales options protect contractors and mines from impact of price volatility
Atlas Iron contractors will be shielded from the drop in iron ore’s value, the miner says.
As the mineral falls below the US$50 a tonne level at which mining becomes unviable, Atlas reiterates that it has forward sales options, or ‘put options’, above that and notes that the falling Australian dollar is also helping its bottom line.
Atlas managing director David Flanagan says its pricing strategies sought to reduce the miner’s exposure to iron ore price volatility while the company completed its capital raising and production ramp-up.
“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,” Flanagan adds.
“At the same time, we have retained some exposure to iron ore price upside.”
Those “investors” now include transport and logistics players McAleese and Qube after a profit-sharing and cost-reduction deal.
However, the company warned of uncertainty after its forward sales run out in December.
“While Atlas’ sales strategies provide greater certainty of price over the current quarter (and some sales in the December quarter), pricing outcomes beyond this period cannot be guaranteed and are uncertain,” the company says in a stock exchange announcement,” it says.
“Atlas’ ability to continue to extend the current forward sales and pricing strategy will be dependent on iron ore physicals and derivatives market conditions; accordingly, no representation is made as to the company’s ability to do so.”