Transport group McAleese says it is in discussions with its major client Atlas Iron about continuing mining and haulage activities after the Pilbara miner suspended operations in the face of tumbling iron ore prices.
McAleese told the Australian Securities Exchange yesterday that it had held constructive discussions with Atlas and its stakeholders on a range of “commercial scenarios’’ with a view to supporting ongoing mining and haulage.
The transport group, which trucks ore from Atlas Iron’s Pilbara mines to Port Hedland, yesterday extended for five days a trading halt called while talks continue with Atlas’s US bond holders in Los Angeles.
McAleese called the halt on April 13 amid estimates from broking analysts that the Atlas contract could account for up to 50 per cent of its earnings this year.
Reports last night said that insolvency specialists Korda Mentha’s 333 Capital was advising McAleese while McGrath Nichol was advising lenders to McAleese. McGrath Nichol and 333 Capital could not be reached for comment. McAleese carries debt of more than $175 million.
The iron ore price has halved this year amid surging production from low-cost majors BHP Billiton and Rio Tinto, putting pressure on producers such as Atlas and the contractors who do much of the mining, crushing, haulage and other services for them.
On April 10, Atlas said it was ceasing mining and crushing at the Abydos project and would cease operations at the Wodgina mine by the end of the month. All projects would be placed on care and maintenance pending any change in conditions in the iron ore market.
Iron ore prices have since staged a recovery, up $US2.99 to $US57.81 a tonne for high-grade product delivered to Qingdao, according to the Metal Bulletin. But a year ago it fetched a high of $US114.40.
McAleese chief executive Mark Rowsthorn is in Los Angeles for the talks with Atlas bond holders. Contractors to Atlas Iron are believed to be offering to slash the costs of their services in an effort to keep the iron ore miner afloat.
According to reports the contractors, McAleese, Maca and Qube Logistics, have approached US-based note holders Western Asset Management, Sankaty, Fortress Investment Group and Marathon Asset Management with an option of forgoing some of their payments to ensure the company does not collapse.
In return, the contractors would share in some of Atlas Iron’s upside when the iron ore price regained strength and its position improved.
If the rescue package from the contractors is not accepted, the lenders may search for other contractors elsewhere to provide the logistics services for Atlas at a cheaper rate so the company can remain operational.
The four US-based hedge funds control 60 per cent of notes on issue to Atlas Iron, which have a face value of $US270m ($350m) and comprise the majority of its debt.
The note holders have hired Houlihan Lokey, which has opened offices in Australia, as advisers as the situation continues to unfold.
McAleese has already shredded 90 per cent of its value since listing in 2013, falling to 16c before trading was halted this month, from an issue price of $1.50.
Source: The Australian
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