Market likes Atlas turnaround story

S&P Global Ratings upgraded Atlas Iron’s credit rating today, as the company’s shares hit the highest level since the July 2015 capital raising.
Market likes Atlas turnaround story Market likes Atlas turnaround story Market likes Atlas turnaround story Market likes Atlas turnaround story Market likes Atlas turnaround story

Mining at Wodgina

Kristie Batten

S&P lifted the long-term corporate credit and issues ratings on Atlas and its senior secured debt to B- from CCC.

“The upgrade reflects the turnaround in Atlas Iron's financial position since early last year,” S&P credit analyst May Zhong said.

“Benefiting from rising iron ore prices, Atlas Iron's earnings and cash flows have increased materially during the first half of the year ending June 30, 2017, enabling the company to partially prepay some of its debt.”

The junior producer last week repaid another $A54 million in debt, reducing its US term loan debt to roughly $118 million, down from $180 million in May last year and $260 million at the start of 2016 prior to a debt-to-equity swap.

Atlas closed December with $134 million cash, up from $95 million three months earlier.

S&P said the debt reduction improved the sustainability of Atlas’ capital structure, making it more resilient to iron ore prices.

The recovery rating on the debt remains unchanged at 3, reflecting S&P’s view of meaningful recovery prospects in the event of a default.

The ratings have a stable outlook.

“The stable outlook reflects our expectation that Atlas Iron's operations will remain steady,” Zhong said.

S&P expects Atlas’ strong performance to continue in the current quarter, given it has hedging in place over a portion of its sales.

It has forecasts leverage to fall below 2x before the end of June, down from 3.3x a year earlier.

But it warned that leverage could jump to 5x if iron ore prices fell back to $US45 per tonne.

The Metal Bulletin 62% iron ore spot price rose back over $80/t overnight.

S&P estimates Atlas break-even price is around $40 per tonne.

Atlas expects to be in a net cash position by mid-year.

New managing director Cliff Lawrenson will start with Atlas on Monday.

Shares in Atlas jumped by 22% to A4.4c, its highest level since raising $86 million at 5c per share in mid-2015.