Atlas Iron on track to double production

25 Jul 2012, 2:54 pm   -   Source: AAP

Atlas Iron plans to double production by the end of the year after June quarter shipments increased by 25%, as it presses ahead with a rail study

Atlas Iron plans to double production by the end of 2013 as it presses ahead with a rail feasibility study.

The iron ore miner recently entered into an agreement with rail operator QR National to look at the feasibility of constructing an independent railway in WA's Pilbara region.

Atlas, which moves its iron ore to port by road, will bring three new mines into production over the next 18 months as it targets 12 million tonnes per annum by December 2013.

But analysts are concerned that an investment in significant rail or port infrastructure could lead Atlas to take on a mountain of debt.

Atlas Iron on Wednesday said it shipped 1.5 million tonnes during the June 2012 quarter, up 25 per cent on the March quarter and consistent with the company's previous guidance.

Full year shipments to June of 5.57 million tonnes represented a 21 per cent rise on the prior financial year and was also in line with previous guidance, the company said.

Managing director Ken Brinsden said the company was on track to double production to 12 million tonnes per annum by the end of next year.

"We have made further significant progress in bedding down the reserves needed to underpin our longer-term production target of 46 million tonnes per annum by 2017," Mr Brinsden said in a statement.

The company has agreed with QR National to share the costs of a rail feasibility study, and a potential development agreement would likely involve Atlas being a foundation customer of the railway.

Gina Rinehart's Hancock Prospecting has reportedly expressed interest in the rail venture to service its Roy Hill project in the Pilbara.

Atlas says iron ore prices are holding up reasonably well, with the sale price for its "standard product" reaching $US122 tonnes($A119.68) to $US124 tonnes ($A121.65) in the March 2012 quarter.

During the June quarter the company completed spot sales with some new Chinese steel mills.

The company also said it recorded a 70 per cent increase in its Pilbara ore reserve estimate to 414 million tonnes since it acquired fellow miner FerrAus in 2011.

Morningstar analyst Gareth James said Atlas' short-term targets were achievable but long-term production targets were less certain.

"Their current production growth aspirations are going to cost money, but nothing like what it would cost to build a railway or to expand the port for longer-term growth," Mr James said.

A slowdown in China and debt problems Europe had punished the company's share price, but Atlas continued to increase production relatively cheaply due to its conservative capital expenditure.

"Atlas is a business that's in good financial shape," he said.

"Things may weaken, but it's in a better place than most to withstand the downturn."

At 1450 AEST Atlas' share price was five cents lower at $1.70.

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