Atlas Iron Limited share price crashes 16%

The Atlas Iron Limited (ASX: AGO) share price has crashed 16% due to releasing news today.

Firstly, the resources company announced that it will be reducing its debt to the tune of $20 million, which seems like a good move. The company also said that the company’s lenders have agreed to ease loan covenants, including reducing the minimum cash balance requirement at the end of each month from $35 million to $15 million.

Atlas Managing Director Cliff Lawrenson said that the debt reduction move was to strengthen the balance sheet and the strong Australian dollar made the timing opportune.

Mr Lawrenson said “Following the A$20 million repayment, we will have reduced our debt from more than A$180 million in June 2016 to less than A$85 million – cutting our interest cost by about A$8 million a year”.

The company said that it had $71 million cash on hand at 31 December 2017 and a further $34 million in a reserve account.

In another announcement the company announced that it has entered into an agreement to purchase up to 1.5mt of lithium DSO for export. The company also said that lithium DSO mining was underway.

A negative in the company’s updates was that the net cash used in operations was $1.2 million in the December quarter after interest and financial instruments.

The most concerning thing about the release was that Atlas realised a sale price of A$58 per wet metric tonne, including the impact of hedging and option premiums. However, the full cash cost was A$59 per wet metric tonne, meaning that the company was losing money per tonne.

Foolish takeaway

The company attributed this performance to the heavy discounts that are being applied to lower grade iron ore at the moment.

That’s one of the dangers of investing in resource stocks, there’s every chance that the cost of delivering the product to market is more than it can sell it for.

That’s why I’d much rather invest my capital into growing shares like these top stocks that have control on their prices.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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