Iron ore producer Atlas Iron Limited (ASX: AGO) has been a big mover today with a gain of 18% to 3.2 cents. Incredibly this means its shares have now risen by an astonishing 255% in just the last three months.
Today's gain comes following an announcement that the company repaid $54 million in debt at the end of the December quarter to reduce its overall loan debt to $118 million.
Atlas Iron was able to achieve this thanks to strong cash flow generation during the quarter as a result of a higher realised iron ore price.
I've been very impressed with the rate at which both Atlas and Fortescue Metals Group Limited (ASX: FMG) have repaid debt this year.
Though it is worth noting that whilst Fortescue chose to significantly increase its debt repayments, Atlas is obliged to use any cash on hand at the end of each quarter in excess of $80 million to pay its lenders.
Still, the debt is quickly reducing and it is on course to have a positive net cash position by the middle of this year if iron ore prices remain at favourable levels.
But how long iron ore prices remain high is anybody's guess. Earlier this week the AFR reported that analysts at RBC Capital Markets believe iron ore prices are unsustainable and a pull-back is inevitable.
They are not alone either. Barclays has predicted that by the third quarter of 2017 prices will have fallen as low as US$50 a tonne due to a drop in demand because of a cooling Chinese property market.
I agree with RBC and Barclays and expect iron ore to drift significantly lower in the months ahead. For this reason I can't help but feel that now might be the time to lock in your Fortescue and Atlas gains and invest in other areas of the market.
