May 17, 2012 -- Updated January 25, 2012 03:00 HKT
Atlas Iron Limited ASX:AGO Upgraded
Atlas Iron Limited ASX:AGO has been upgraded to a strong buy at Heffernan Capital Management, Shayne Heffernan issued the upgrade today and set a 2013 price target of $8AUD on the stock.
Atlas today reported 1.39 million tonnes of shipped ore for the quarter, down 5 per cent from the September quarter, which it blamed on unplanned crusher breakdowns at its Wodgina site.
It adjusted its annual target from 6 million tonnes per annum to 5.5mtpa and shares fell as much as 7 cents, or 2.2 per cent, to $3.19 in early trade.
Atlas’ Port Hedland ship loader is still offline today due to electrical damage caused by the January cyclone, which is estimated to have cost the junior between 150,000 – 350,000 tonnes of ore export.
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But Atlas’ output was already suffering from the crusher malfunctions in October and November, according to Atlas chief operating officer Jeremy Sinclair.
Atlas Iron managing director David Flanagan says he is not in the business of building up a company for sale, even if his junior does have something all iron ore miners in the Pilbara want: port infrastructure.
While delivering downgraded production and export results for the December quarter and peeling back the annual target, Mr Flanagan said he remained committed to building Atlas into an iron ore force in its own right.
“We’re not in the business of building something to then go and sell it, but we’re listed and we’ll follow all the proper governance practices in the event that someone makes a bid.
“We don’t think that we’re a fish floundering on a rock, we think we’re doing okay.”
Atlas Iron Limited (Atlas) is engaged in the exploration, development and mining of iron ore. It’s principal activity is the operation of the Pardoo and Wodgina iron ore mines in the Pilbara in Western Australia. In addition to its Pardoo and Wodgina DSO projects, it focused on the development and feasibility of its Abydos and Mt Webber DSO projects, which together with Wodgina, comprise the Turner River Hub project.
The Company operates in the mineral exploration industry in Australia. During the fiscal year ended May 30, 2011, the Company commenced exporting product from its second 100% owned direct shipping ore (DSO) project at Wodgina. In July 2011, Atlas entered into an agreement with Centaurus Metals Limited (Centaurus), an iron ore explorer and developer.
In September 2011, Atlas acquired a 19.9% interest in Centaurus. On February 14, 2011, Atlas obtained control by acquiring 58% of Giralia Resources NL (Giralia). By April 5, 2011, the Company had acquired 100% of Giralia.
Valuation Ratios
| Company | Industry | Sector | S&P 500 | |
|---|---|---|---|---|
| P/E Ratio (TTM) | 13.40 | 56.35 | 20.79 | 346.55 |
| P/E High – Last 5 Yrs. | 14.30 | 953.42 | 179.85 | 149.46 |
| P/E Low – Last 5 Yrs. | 14.30 | 124.49 | 27.43 | 12.32 |
| Beta | 2.09 | 1.37 | 1.29 | 1.20 |
| Price to Sales (TTM) | 4.88 | 2.23 | 1.86 | 2.25 |
| Price to Book (MRQ) | 1.52 | 0.95 | 2.06 | 3.69 |
| Price to Tangible Book (MRQ) | 1.75 | 0.98 | 2.65 | 6.51 |
| Price to Cash Flow (TTM) | 14.25 | 58.70 | 17.57 | 9.25 |
| Price to Free Cash Flow (TTM) | 16.00 | 1.23 | 3.40 | 20.58 |
| % Owned Institutions | – | – | – | – |
Dividends
| Company | Industry | Sector | S&P 500 | |
|---|---|---|---|---|
| Dividend Yield | 0.94 | 1.73 | 1.42 | 2.08 |
| Dividend Yield – 5 Year Avg. | 0.24 | 1.11 | 1.52 | 2.44 |
| Dividend 5 Year Growth Rate | – | 3.82 | 15.80 | -1.97 |
| Payout Ratio(TTM) | 14.83 | 25.51 | 19.83 | 88.61 |
developments and an inventory of highly promising exploration prospects, Atlas
Iron is entrenched firmly in the space so sought after by resource
investors.
- Atlas has infrastructure in place;
- Atlas is producing at 6Mtpa (million tonnes per annum), with expansion plans
in place to move to 12Mtpa by the end of 2012; - Atlas is generating strong operating cash flows;
- Atlas is an ASX100 company; and
- Atlas has the people, the resources and the track record to deliver on all
its promises.
The Company’s investment proposition begins with its vast iron ore resources
in the Pilbara region of Western Australia. Located in the north of one of the
world’s most desirable iron ore provinces, much of Atlas’ iron ore inventory is
classed as Direct Shipping Ore (DSO), meaning it is of such high grade that it
can be shipped without having to undergo any expensive processing.
In 2011 the Company has reached the key target of producing DSO at an annual
rate of six million tonnes from its two operating mines, Pardoo and Wodgina. The
Company now aims to lift this to nine million tonnes in 2011 and 12 million
tonnes in 2012 through the development of its Abydos and Mt Webber deposits. The
acquisition of Giralia Resources in March 2011 brought with it the highly prized
McPhee Creek and Daltons DSO deposits in the North Pilbara, giving Atlas
additional expansion capacity in the medium term.
Thanks to the close proximity of Atlas’ deposits to Port Hedland, the Company
can truck its ore to port, alleviating the need to either build a hugely
expensive railway or rely on owners of the existing lines to transport its ore.
This puts Atlas in control of its own destiny.
Atlas has also secured ample port capacity, enabling it to ship up to 15
million tonnes of ore a year.
These key factors come together to allow Atlas to produce a tonne of ore at a
cash cost of less than A$50. This provides a substantial cash operating margin,
particularly when it is multiplied by six, nine and 12 million.
As well as the substantial and rapidly rising free cashflow being generated
by its growing iron ore exports, Atlas owns a number of magnetite projects in
WA, including the world-class Ridley magnetite project and the Balla Balla
titanomagnetite-vanadium project in the Pilbara, and the Yerecoin magnetite
project in the northern wheat belt. The Company has stated its desire to sell a
substantial slice of Ridley and at the time of writing, was negotiating with
several interested parties.
A preliminary feasibility study completed in April last year found Ridley was
a world-class project with extremely robust financial prospects. It concluded
that Ridley could produce 15 million tonnes a year of magnetite concentrate at
68.3 per cent Fe and had a project establishment cost of $2.7 billion. This
would generate earnings before interest tax and depreciation (EBITDA) of $535
million.
Atlas has all the pieces of the jigsaw needed to underpin significant growth,
both in terms of production and returns for shareholders. The strategy is mapped
out step-by-step, based on a combination of dependable cashflow, organic growth
and exploration leverage, giving investors both short-term comfort and
substantial upside over the medium to longer term.
That’s why Atlas is known as the Pilbara’s emerging powerhouse.
Growth Rates
| Company | Industry | Sector | S&P 500 | |
|---|---|---|---|---|
| Sales (MRQ) vs Qtr. 1 Yr. Ago | 790.55 | 16.90 | 17.63 | 9.67 |
| Sales (TTM) vs TTM 1 Yr. Ago | 590.00 | 21.25 | 18.95 | 9.54 |
| Sales – 5 Yr. Growth Rate | 371.88 | 20.70 | 13.40 | 6.52 |
| EPS (MRQ) vs Qtr. 1 Yr. Ago | 561.94 | -31.86 | -1.66 | 28.83 |
| EPS (TTM) vs TTM 1 Yr. Ago | 344.94 | – | – | – |
| EPS – 5 Yr. Growth Rate | – | 4.38 | 22.83 | 0.70 |
| Capital Spending – 5 Yr. Growth Rate | 324.79 | 29.92 | 17.85 | 3.81 |
Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. www.livetradingnews.com
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Sales@Heffcap.com
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