Why the Atlas Iron share price jumped 41% today

The Atlas Iron Limited (ASX: AGO) share price jumped 41% today to 1.7 cents, after the iron ore miner reported a 55% improvement in net losses for the six months to December 2015.

Atlas reported an underlying net loss of $63 million in the first half of 2016, compared to a $139 million loss in the previous year.

That was on the back of the falling iron ore price, which saw revenues sink 17% to $372 million, despite shipping 6.9 million tonnes or ore – the same as the previous year.

Atlas received an average price of US$42.60 (A$59.07) per tonne in the first half, compared to US$62.82 (A$70.47) a tonne in the same period last year, down roughly 30% in US dollar terms. The good news is that the miner has managed to slash its full cash costs to A$55.75 a tonne, from A$72.87 a tonne in 2015.

Operating cash flow improved to $14 million for the half too.

The market clearly liked the news, and rather than being priced for an imminent death, a little bit of confidence is coming back in.

What now for Atlas?

If the iron ore price stabilises around these levels, Atlas may be able to breakeven, or even make a small profit if the miner is lucky. The key problem remains, though – and that’s the level of the iron ore price.

And as we mentioned yesterday, Atlas has also restructured its debt, but in effect will likely hand control (70%) of the company over to its lenders.

Foolish takeaway

While traders may make some money trading Atlas shares, long-term investors may want to steer clear, particularly when there are so many high-quality companies trading at fair prices.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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