Mount Gibson Iron (MGX) is Western Australia’s fifth-largest iron ore miner based on export volume. The company was one of the first new iron ore producers in the mid-west region of Western Australia and it took advantage of that position.

MGX experienced a considerable boost in 2006, when it acquired Aztec Resources and its Koolan Island project. However, the group’s FY12 result showed contraction in profit in over five years.

FY12 Results

MGX’s FY12 performance was a real change from its previous years of growth.

Tonnes of ore sold for FY12 was 5.21 million, which down a 0.5% on FY11.  Whilst this may not look like that bad of a result, it came on the back of a 29% increase in production, which is an indication of a lower grade of ore.

Sales revenue over the 12 months decreased 3.5% to 648.5 million, with the company blaming a lower price for its ore. Net profit was down a massive 28%, to 172.5 million.

The group did have $292.7 million of cash on hand, but this was down from $387 million a year earlier. Operating cash flow fell 75.6% to $56.2 million over the financial year, and if we see a repeat decline in FY13, MGX’s cash balance is likely to experience another steep drop.

Iron ore

Iron ore prices had a dramatic fall since the end of the financial year, dropping from a little under $135 a ton to a low of around $86 a ton early September. This represented a massive 36.3% decline.

Since then the iron ore price has risen over 32% on the back of an increase demand by China. China, which accounts for over the 60% of global demand for the ore, saw its exports grow at the fastest rate in over three months in September.

Exports grew by 9.9% compared to a year earlier, which was well above the 5.5% forecasted by economists. What we think is alarming for MGX is that over the period of this increased demand MGX’s share price has been more or less flat.

This compares to other pure-play iron produces like Fortescue Metals and Atlas Iron which have seen their share price increase by over of 30%.

Outlook

MGX’s FY12 results were disappointing to say the least, and unless there is a material pick up in iron ore prices we don’t see a return to growth in the near term. Whilst the iron ore price has recovered 32% since its September low it is still down over 15% since the end of FY12.

What is worrying is that despite the recent rise in the ore price, MGX’s share price was not able to hold on to any of its gains like its peers did. This indicates that the selling pressure relates to deteriorating company fundamentals such as the lower grades it mined in FY12.

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Atlas Iron (ASX:AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

Iron ore in spotlight

Iron ore miners have been in focus over the past few weeks due to a combination of factors. Among these is the improving prospect for iron ore.

We don’t believe the current spot price around $142 a tonne reflects what is still a favourable supply/demand dynamic for Aussie miners.

The European debt crisis forced some of the higher cost iron ore miners to cut back production last year.

This is likely to ensure the iron market remains in a supply deficit for a few more years yet, which not only supports prices but provides an opportunity for low-cost producers like AGO to fill the breach.

Also, the Glencore/Xstrata merger proposal has thrown the spotlight on pure play iron ore miners. Given the commodities giants’ lack of iron ore assets, the merger may encourage existing iron ore companies to either consolidate or potentially be the subject to an offer.

Output hit by cyclone

For the December quarter, Atlas Iron reported an 11% quarter-on-quarter fall in iron ore mined.  This was due to Tropical Cyclone Heidi, which impacted mining operations and damaged the Utah Point ship loading facility at Port Hedland.

As a result, AGO downgraded its FY12 production target to 5.5 – 5.7 million tonnes, from the previous 6 million tonnes.  However cash costs were within AGO’s targeted $42/ton-$45/ton range for FY12.

AGO, like other iron ore miners, suffered from a fall in iron ore prices during the quarter. However it also positioned itself to take advantage of a recovery in prices.

The company moved from quarterly pricing of its contracts towards shorter term reference points. This means it is more directly exposed to spot prices, which have trended higher in recent months.

Outlook

Despite last quarter’s operational issues, AGO managed to grow its cash pile from $373 million to $380 million.

With strong operating cash flows and competitive cost of production, AGO has significant capacity to fund development projects such as the Mt. Dove mine.

Although AGO faced a number of headwinds in the December quarter, we think it is well placed to take advantage of a recovery in iron ore prices. Atlas Iron (AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

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Atlas Iron (ASX:AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company’s significant projects include the Pardoo operation, the Ridley project and the Mt Webber Direct Shipping Ore (DSO) project, in the Pilbara region.

AGO is on target to achieve its growth target of exporting at a rate 12 Mtpa by the end of 2012.

Atlas mapping a deal

AGO made a takeover offer for fellow iron ore miner FerrAus Limited (FRS) on Monday.

The deal trumped an exsiting takeover offer from Hong Kong-based Wah Nam International, launched in November last year.

Wah Nam has failed to gain significant traction on its bid for FRS, and yesterday pulled out of the running for the junior miner, ceding the battle for control to AGO.

FRS and AGO shares both gained ground yesterday, with Wah Nam’s withdrawal paving the way for the iron ore miners to complete their own deal.

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Atlas Iron (AGO) is an emerging iron ore producer and explorer, and has been one of the market’s hot stocks in recent months. With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company’s significant projects include the Pardoo operation, the Ridley project and the Mt Webber Direct Shipping Ore (DSO) project, in the Pilbara region.

On 21 December, AGO made an $828 million takeover offer for junior iron ore explorer, Giralia Resources (GIR).

The implied price of $4.57 per represents a 53% premium to GIR’s closing price yesterday.

GIR shareholders can either accept 1.5 AGO shares per every GIR share, or 1.33 AGO shares and 50 cents per every GIR share.

GIR’s board accepted the offer and the company’s share price skyrocketed 39.8% today.  AGO shares dropped 1.4% amid fears the offer price was too high.

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Atlas Iron (AGO) is an emerging iron ore producer and explorer. With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company’s significant projects include the Pardoo operation, the Ridley project and the Mt Webber Direct Shipping Ore (DSO) project, in the Pilbara region.

Following the commencement of mining at Wodgina in June 2010, AGO is on target to ramp up iron ore exports from 1 million tonnes per annum (Mtpa) to 6Mtpa during the December 2010 quarter.

AGO is on target to achieve its growth target of exporting at a rate 12 Mtpa by the end of 2012.

Iron ore roar

As an iron ore explorer/producer, AGO is well placed to benefit from continued strength for the iron ore market.

Chinese demand has been driving up the price of iron ore over the past few years and prices have gone wild.

Spot iron ore prices in China have extended gains after domestic steel prices added strength this week and iron ore miners continued raising offers and tightening supply.

At the recent Steel Index conference, the global seaborne supply of iron ore is anticipated to rise 8.5% to 1.1 billion tonnes next year.

AGO boasts multiple iron ore port options at Anketell, SW Creek, Utah and Oakajee, and has six off-take agreements with more to come in FY11.

Recent developments

In June, AGO announced the commencement of its Wodgina DSO Iron Ore Project in WA.

With the commencement at Wodgina, AGO is expecting combined iron ore exports at its Pilbara operations to total 6 Mtpa by December 2010.

In September, AGO excited the market by confirming a 50% increase in reserves at its north Pilbara Projects.

In the same month AGO loaded the first iron ore from its Wodgina and Pardoo mines, onto the Bergen Max export vessel at the New Utah Point Port in WA.

AGO advised that the port is at the heart of its plans to ramp up production to 6Mtpa by Christmas, and then 12Mtpa by 2012.

AGO signed up with mining sector bigwig BHP Billiton on 18 November, entering a memorandum of understanding (MOU) on iron haulage and port access at Port Hedland.

The two miners said the talks involve hauling iron ore from AGO’s Pardoo mine via BHP’s Goldsworthy rail line.

AGO has been one of the hot stocks since these developments, and has continued to climb on rumours of receiving multiple approaches from Chinese parties interested in buying the company’s Balla Balla iron ore project in Pilbara.

Quarterly results

AGO’s most recent results are for the September quarter. It was a landmark quarter, with first ore-on-ship at the new Utah Point port facility, commenced mining at Wodgina and production ramp up at Pardoo.

Over the quarter, 313,719 ore tonnes were shipped; 612,649 ore tonnes were processed; and 774,653 ore tonnes were mined.

DSO Reserves increased by 50% and AGO completed a merger with Aurox Resources in August, allowing for a greater expansion of port facilities.

AGO finished the quarter with $108 million of cash on hand at 30 September – which has increased to $120 million at 25 October.

Outlook

As the iron ore market returns to robust boom times, AGO is taking advantage of current conditions, ramping up some projects and making great sales of others.

AGO has a very healthy balance sheet, with $120 million cash on hand, and is free of net debt.

Going ahead, AGO will continue to explore Pilbara for further opportunities to add to its already-impressive project portfolio and will focus on mining at Wodgina and production ramp up at Pardoo.

As a result, AGO will be one of the stocks to watch in coming months.

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