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Atlas strikes deals to resume mining

Atlas Iron's Wodgina minsite. Picture: Bill Hatto/The West Australian.

UPDATE 2.20pm: Atlas Iron will resume operations at all its Pilbara iron ore mines after striking deals with its contractors to cut costs and securing some relief from a slightly higher iron ore price.

The troubled miner also announced an expected $150 million capital raising to provide a cash buffer against further possible deterioration of the iron ore price.

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The exact size and price of the raising has not yet been determined but the company said it expected to conduct it by way of an institutional placement and share purchase plan. The price of new shares is likely to between 5-10 cents and the raising is likely to be heavily dilutionary to the company's share register.

Atlas said it had struck deals with its three key contractors, which were expected to deliver ore at a break-even price of $US50 per dry metric tonne based on the benchmark 62 per cent iron content, compared to the current benchmark price about $US60 a tonne.

The company will issue up to 600 million new shares and options to contractors as part of the agreements.

Atlas said the agreements would ensure “strong margins at current iron ore prices”.

“Under this collaboration agreement, the contractors can receive an uplift in their rates as the iron ore price rises, and receive a total of 25 per cent of applicable positive net operating cash flows,” the company said.

Contractors MACA, McAleese Group and Qube Holdings are parties to the collaboration agreement.

MACA will provide mining services at the Wodgina mine on top of its existing contract at Abydos. MACA said Wodgina would generate revenue for the contractor of more than $4.2 million a month for about 17 months.

“The project will utilise other idle plant and equipment and ensure we can maintain continued employment for our people,” operations director Geoff Baker said.

McAleese Group said it would continue providing haulage services from Abydos and Wodgina under revised agreements. It has also committed $14 million to Atlas' proposed share issue.

The transportation company said its annual earnings forecast remained unchanged at about $70 million.

Atlas said mining at its Abydos operation was back in full swing, with Wodgina pit operations to recommence next week.

“Once at full production, Atlas will produce approximately 9mtpa of ore from its Abydos and Wodgina mines,” the company said.

It said Mt Webber was expected to resume shipping during the September quarter, targeting up to 6mtpa from the mine.

Atlas would target production of 14-15mtpa by the end of the year once Mt Webber was back in production.

Chairman David Flanagan said the package of measures announced today would underpin a strong future for the company, its shareholders, about 700 employees, contractors and the people of WA.

“This is nothing short of an outstanding result for everyone involved directly and indirectly with Atlas,” he said.

“The agreements are the result of the widespread commitment shown to Atlas’ success and overwhelming desire to see the company and all its stakeholders prosper today and in the long term.”

He said the agreements would allow Atlas to operate at competitive production costs, underpinning strong cashflow.

The capital raising would also provide the company with a robust balance sheet to withstand further iron ore price volatility and the ability to further increase production in future, Mr Flanagan said.

The company said it remained in compliance with its debt covenants.

Atlas shares are expected to resume trading after the proposed capital raising. The company will hold a shareholders meeting on Friday, June 19, to consider and vote on the capital raising.

Iron ore at the Chinese port of Qingdao was trading at $US62.30 a tonne yesterday.

Atlas shares last changed hands for 12 cents.

MACA’s share price was steady at 90 cents at the close, while McAleese was up one cent, or 6.9 per cent, to 15.5 cents and Qube was up 13 cents, or 4.68 per cent, to $2.91.