IRON ore miner Mount Gibson has warned that it will record an impairment charge in its half-year results of almost $1 billion as the price of the steelmaking commodity hits its lowest point in almost six years.
The Perth-based miner said the charge was mainly attributable to its Koolan Island project, which ceased operations suddenly late last year after a pit wall collapse allowed seawater to flood the mine.
The miner is also likely to review the value of its other assets given the tumbling iron ore price. The rapid slump in the price has forced the company to apply for royalty relief under the Western Australian government’s initiative for junior miners.
More than $6bn in writedowns is on the cards for Australia’s iron ore producers, given the falling price, which sank to $US62.80 a tonne, its weakest point since the middle of 2009.
Impairments have also been flagged or taken by Arrium, Citic Pacific, Atlas Iron, Gindalbie Metals and Grange Resources.
The market will be watching Fortescue Metals Group’s quarterly result closely today to look for signs of the impact of the low price on Australia’s third-largest iron ore producer. JPMorgan is tipping a slight fall in shipments and about a $US10 a tonne fall in achieved prices for the Andrew Forrest-backed miner.
The red dirt, used to make steel, has already lost about 12 per cent since January, following on from a significant slump in the second half of 2014, which saw its value slashed by almost 50 per cent.
Iron ore has fallen for seven consecutive trading sessions.
Mount Gibson chief executive Jim Beyer said the December quarter was particularly challenging for Mount Gibson, in light of the continued decline in iron ore prices and the failure of the Koolan Island seawall.
“These factors have necessitated significant reductions in the company’s workforce and will unfortunately require a substantial non-cash impairment to be recorded in our upcoming half-year financial results next month,” he said.
Mount Gibson flagged a substantial non-cash impairment of between $850 million and $950m before tax to be recorded in its financial results for the six months to December 31, 2014. This impairment will come in addition to the previously flagged non-cash write-off of a $46m deferred tax asset related to the now-repealed Mineral Resources Rent Tax.
The miner outlined in its report that during the December quarter, it achieved an average realised price for its standard iron ore fines of $US60 a tonne, after grade and provisional pricing adjustments and penalties for impurities. The price was 8 per cent lower than the $US65 a tonne realised in the prior quarter.
The company said it had applied to the WA government’s iron ore royalty relief initiative, which was introduced to help miners struggling with the historic low prices.
The government is offering a 50 per cent rebate on hematite iron ore royalties for up to 12 months, subject to the miner’s average realised iron ore price remaining below $90 a tonne over the period.
“Mount Gibson welcomes the WA government’s demonstration of support for the junior iron ore sector in challenging conditions, and has submitted an application for relief,” the company said.
Mount Gibson’s biggest issue has been its Koolan Island operation. The main pit at the mine flooded in November when a sea wall between the pit and the surrounding ocean gave way.
The company had previously evacuated the mine of its personnel and equipment in late October when there was a slump in a portion of the wall.
Mr Beyer said the site was still being assessed and options reviewed. He said the mine would be rebuilt only if it was clear a solid return could be made.
Citi analyst Clarke Wilkins said mothballing the mine looked the best option.
“The Koolan Island pre-strip was a source of considerable cash burn and so if mining does not resume and an insurance payout for property and equipment and business interruption is substantial/forthcoming, the breach of the pit wall could be a blessing in disguise,” he said.
Mr Beyer said the company remained in a “very strong” financial position with substantial cash reserves and negligible debt.
Source: The Australian
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