Atlas Iron (OTC:ATLGF), which owns some low-quality iron ore mines in Australia which are producing an end-product with a lower average grade than the benchmark grade, has published an update on its operations and its cost reduction program. As part of the latter, the company has reduced its amount of employees by 80, and both in the field (30 employees) as well as at the Perth main office some jobs were lost. I'm surprised to see the company fired 50 people at the Perth head office which makes it look like there was too much fat at the corporate structure.
The total cost of this restructuring is expected to be $3M which is very reasonable as it results in an annual saving of roughly $13M. Meanwhile, Atlas shipped a record amount of ore in October, as it was able to load 1.4 million wet metric tonnes followed by another 1.14 million wet metric tonnes in the subsequent weeks. This allows the company to be a bit more upbeat and it's now targeting the upper end of the production guidance of 12.4-13 million wet metric tonnes. Additionally, the cost saving measures seem to be on track and Atlas was able to reduce its expected all-in cost to ship the ore to China to A$64-68/t thanks to the weak Australian Dollar. This means that the AISC in US Dollar is roughly $55-60/t which might mean that Atlas is in a breakeven position, depending on the discount it has to give on its lower quality ore. Atlas is targeting the lower end of the cost guidance, which might mean that it will be in a position to lower its costs even further in financial year 2016.
At this point in time, I continue to avoid Atlas Iron because its cost structure is relatively high and its revenues will be lower due to the relatively poor quality of its iron ore. If you'd like to get exposure to 'inferior' iron ore, Fortescue Metals (OTCQX:FSUMF) might be a better choice as it can benefit from economies of scale.
Disclosure: The author is long FSUMF.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.