* Atlas says China iron ore market still robust, shares
* Says boosting output as Chinese mills turn away from
* Spot sales to reach 2.8 million tonnes in 2014
(adds details, quotes)
By James Regan
SYDNEY, Jan 29 Atlas Iron Ltd, among
the smallest of a group of miners expanding in Australia's
Pilbara iron-ore belt, on Wednesday played down the risks of
faltering demand fom China as a flood of new ore hits the
Analysts expect spot iron ore prices, which have been
dropping since early December will continue to soften as demand
from China, where Atlas sells all its ore slows in step with
declining economic growth.
Smaller Australian producers such as Atlas and BC Iron Ltd
typically spend more to mine each tonne of ore than
giants, like BHP Billiton and Rio Tinto, which
enjoy greater economies of scale.
As Atlas grows, its costs are coming down -- it forecasts it
will spend A$49 ($42.99)- A$52 ($45.62) for each tonne this
year. That is still $10 or more above the bigger producers,
though a comfortable margin given current prices of around $124
a tonne .IO62-CNI=SI.
Atlas Managing Director Ken Brinsden said the Chinese market
still had plenty of room to grow and any "falling out of bed"
would be short-lived.
"The key driver is that the Chinese steel industry is overly
reliant on high-cost domestic production and it is such a large
chunk of their supply base that it is going to take quite a
while for expanded production around the world, including
Australia, to catch up and replace it," Brinsden said.
Iron ore prices are set to average $121.50 a tonne in 2014,
lower than last year's $135, according to the median estimate in
a Reuters poll of 14 analysts. That would be its cheapest price
since 2009 when it averaged around $86.
Goldman Sachs holds one of the more bearish views on iron
ore and forecasts prices to drop 20 percent to an average $108 a
tonne in 2014.
Stocks of imported iron ore across China's major ports rose
more than a million tonnes to 92.6 million tonnes last week
SH-TOT-IRONINV, the highest since November 2012, according to
industry consultancy Steelhome.
Australian miners are in the midst of multi-billion dollar
expansion work to dig hundreds of millions more tonnes of ore in
the next few years.
Fortescue Metals Group is expected to show on
Thursday a 10 million-tonne rise in December quarter production
to 29 million tonnes from a year ago. Earlier this month Rio
Tinto and BHP Billiton posted increases of 7
percent and 16 percent respectively.
During the December quarter, Atlas reached a number of new
supply agreements with durations of one to three years, with up
to 7.9 million tonnes contracted for calendar 2014.
"The remaining tonnes will be held for spot sales," Brinsden
said. Atlas said it will place up to 2.8 million tonnes of iron
ore into the spot market this year.
Atlas in July approved a $146 million investment to dig its
fifth mine, forecast to yield an initial 3 million tonnes a year
of iron ore production.
Construction was now 50 percent complete and is integral if
Atlas is to meet its target of 12 million tonnes of production.
Smaller miners also face bigger obstacles getting their ore
to port across the Pilbara desert. Atlas is in discussions to
access Fortescue's rail network and it has also been studying
haulage partnerships with Aurizon Holdings and Brockman
Mining to support additional expansions.
Project execution challenges will pressure the credit
quality of Australian high-yield miners over the next 12-18 with
Atlas facing more risk than Fortescue, according to Moody's
Atlas shares rose nearly 10 percent on Wednesday after
raising its full-year iron ore production guidance and
forecasting a 10-fold rise in first-half earnings before
interest, tax, depreciation and amortisation to as much as A$203
million. The stock peaked at above A$4.30 in the middle of 2011
and has been on a largely downward trajectory since and is now
worth around a A$1.
It raised its fiscal 2013/14 production guidance to between
10.2 million and 10.7 million tonnes, up from the previous
forecast of 9.8 million to 10.3 million tonnes.
($1 = 1.1399 Australian dollars)
(Editing by Ed Davies)