Fairfax media reported this week that management from suspended ASX-listed iron miner Atlas Iron Limited (ASX: AGO) were in LA to meet with creditors to discuss the future of the company.
A decision to wind up the company could have massive knock-on effects for partners McAleese Ltd (ASX: MCS) and Qube Holdings Ltd (ASX: QUB); Fairfax believes that representatives from both of these companies are also attending the meetings.
(Foolish contributor Brendan Lau thinks Qube will shrug off its losses from Atlas: You can find out more in his analysis here)
Atlas has suspended its operations in order to stem its losses as the value of iron ore on the world market is significantly below what Atlas pays to dig it out of the ground.
In its December report, Atlas had $169 million in cash, and owed $327 million in debt, most of which comes due in 2017. According to Fairfax's estimates Atlas has around $130 million cash remaining.
McAleese has been pushing hard for Atlas to continue operations – Atlas is McAleese's biggest customer – and is in a trading halt itself while discussions continue.
On the other hand lenders are understandably pressing for Atlas to be wound up in order to maximise the amount that might be recovered by lenders.
I suppose it is also technically possible that Atlas might remain in an extended trading halt in the hope that iron ore prices improve, or that the Australian government might intervene in order to stabilise the market.
With employee numbers pared right back and all production halted, Atlas could remain mothballed for a fair length of time.
However, a recovery in ore prices and government intervention both look particularly unlikely, and I suspect that Atlas may be wound down. Or, it may buy some time with outrageously expensive debt refinancing a la Fortescue Metals Group Limited (ASX: FMG).
If Fortescue has to pay 9.75% per annum, I dread to think of what Atlas might be forced to cough up.
All things considered I believe that Atlas is likely to be wound up, and with much of its debt taking precedence over shares, ordinary shareholders are likely to be left empty handed.
