Atlas Iron Limited (ASX: AGO) shares fell another 10% on Tuesday following a 3% fall in the iron ore price overnight to below US$70. Today's share price of just 14.5 cents represents an incredible 96.5% fall from an all-time high of $4.37 in 2007 and the $4.34 reached in mid-2011.
Another Terrible Year
2014 has been another shocking year for Atlas shareholders. The 45% plunge in the iron ore price has seen the share price fall 88% from over $1.20 at the start of the year. A range of analysts' estimates suggest that Atlas requires an iron ore price around 82 cents per tonne to break even, and accordingly analysts at Bell Potter last week slashed its 2015 earnings forecast by $29 million to a larger loss of $71 million.
2015 Looking Up?
Atlas' problem stems from the fact that it operates comparatively high-cost and short life mines. Accordingly, a small fall in the iron ore price has a massive impact on the group's profits and the company's assets are unlikely to attract a bid from a rival.
Analysts believe it will be difficult for the company to meaningfully cut costs further to the point where profitability is likely, or even where it can compete with the marginal cost producer Fortescue Metals Group Limited (ASX: FMG). The break-even costs of Fortescue and other small miners like BC Iron Limited (ASX: BCI) are between $65 and $80 per tonne, indicating that Atlas has some way to go to remain competitive- let alone profitable.
Dividends?
Not a chance. Atlas recorded a profit of $76 million in 2012 and paid out a small dividend, however with losses expected over the next three financial years it's unlikely management will consider it.
New Mines?
There is the possibility that Atlas could attempt to develop one of its undeveloped resources. Analysts believe that development of the group's assets is possible at reasonable prices, however where funding will come from for the required transport infrastructure is unknown. The company also owns 35 million tonnes of undeveloped port capacity at Port Headland that could be sold or developed.
A Positive Outlook?
Like many iron ore producers, Atlas is unlikely to provide any long-term returns for patient shareholders. It's more likely that the company will fold in time if the iron ore price remains subdued. A far more attractive stock pick can be found in the LNG space.
