What: After a highly productive 2014, Atlas Iron Limited (ASX: AGO) reported record revenues and exports to the market this morning.
Like other junior miners BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX), Atlas has large-scale plans for expansion, however it does not enjoy a significant cost advantage over its competitors.
Highlights:
- Record exports of 10.9 million tonnes (Mt, up from 7.4Mt in 2013)
- Record revenue of $1.1 billion (up 58%)
- Underlying EBITDA of $248m (up from $113m previously)
- Full year dividend of 2 cents per share
- $264m cash at bank, after investing $388m during the year
- FY15 guidance of 12.2-12.8Mt of ore
- FY15 capital investment forecast to be $125m (down from $372m this year)
- All-in cash costs of $76.80 per wet metric tonne (wmt)
So What?
It's a solid set of results and even more impressive given the slide in iron ore prices over the past few months.
Atlas also suffered the drawback of lower prices for its ore than competitors, averaging $98/tonne in 1H14 and $86/tonne in the second half of the year.
Furthermore all-in-costs are uncomfortably close to break-even point which creates risk for investors, although a weakening Australian dollar may give relief, if and when that occurs.
Now What?
The main risk for Atlas and its fellow miners is iron ore price movements in the future.
I have written several times that massive expansions by the world's leading low-cost miners, BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Brazil's Vale SA (NYSE: VALE) will create a supply surplus and drive prices down. Also that's not even factoring in the potential for slow-down in Chinese iron ore demand.
For the moment, Atlas is too risky an investment for my liking despite its appealing price.
It's not a reflection on the company, which is well run and has great potential, but there is a time to buy iron ore investments and that time has not come yet.
Instead investors should check out The Motley Fool's free Top Stock for 2014 recommendation and consider owning shares in a great company with favourable long-term macroeconomic conditions to give it that little extra boost.
Better yet, this company generally sails under investors' radars and still trades on an appealing valuation despite its proud performance record and long-term potential.
If you're interested, simply click on the link below and enter your email address – it takes less than 30 seconds – and we'll send it to you, completely FREE!
