UPDATE 1.20pm: Atlas Iron could beat its full year sales guidance after shipping more lower grade iron ore than expected in the December quarter.
The emerging Pilbara miner shipped a total of 1.75 million tonnes of iron ore in the three months to December 31, up 10 per cent from the preceding three months.
Atlas Managing Director Ken Brinsden said the company was experiencing quite a strong market for low grade product.
"It constitutes a really strong opportunity for Atlas to generate more cash from existing tonnes in the ground,” Mr Brinsden told reporters.
The company said there was now a strong and repeatable market which would allow it to take advantage of the opportunity where it had excess crushing capacity, haulage capacity and excess shiploading capacity.
Higher iron ore prices and costs had made it a very attractive thing to do.
Chinese steel mills see the lower grade product as a cheaper alternative following less supply from the Indian market.
Atlas also said it had been “very active” in discussions around Pilbara infrastructure as it worked to secure a rail solution and expand into its Horizon Two asset.
Atlas said iron ore prices recovered during the December quarter to an average of $US106 per tonne, up from an average of $US98 per tonne in the September quarter.
The price rise was a result of improvements in China's economy and a boost in sentiment as a result of a change in government there.
Atlas believes the iron ore price will trade around US$120 to $140 per tonne over the medium to long-term.
UBS analyst Glyn Lawcock said it had been a better than expected quarter, particularly in terms of tonnes sold.
"They have been benefiting from that low value product,” Mr Lawcock said.
"But it all hangs on the wet season because this quarter can have a big impact on the final outcome.
"The big opportunity lies in whether or not they can expand the business and develop Horizon Two and secure access to a railway system."
Rail studies with QR National are scheduled to be completed at the end of the quarter while Fortescue Metals yesterday indicated it could sell a stake in its railway line in mid 2013.
UBS forecasts the iron ore price will be $AUD90 to $AUD100 over the long term.
JP Morgan analyst Mark Busuttil said the Atlas result was in line with expectations.
"Things seem like they're going along to plan,” he said.
Mr Busuttil said Atlas had been selling lower grade product for some time by utilising spare capacity in its infrastructure chain.
This capacity is expected to eventually all be used for the company's standard product as the mining projects are developed.
Atlas Iron shares closed up half a cent at $1.575.