As Under the Radar Report foreshadowed last Friday, Altura’s income is set to increase from $20 million to $45 million from the iron ore production at Mt Webber in Western Australia because the joint venture partner Atlas Iron announced today that is has board approval for production expansion.
Altura (AJM) owns 30 per cent and has benefited from an extraordinarily good deal and is contributing minimal capital because of the pressure Atlas was under to get production started. The announcement means that Atlas will increase production from 3 million tonnes a year of direct shipping ore (DS0) to 6 million tonnes a year.
Patersons Securities analyst Matthew Trivett says that the stock’s 65 per cent rise in the past few months is due to the commencement of production and that first sales will be booked this quarter.
“There has been pessimism about Atlas’s planned expansion. It has only been in the past couple of weeks in its quarterly report that it said it was keen to do it and today’s board approval signals that it’s definite, that the capital will be allocated for expansion.”
Altura’s price is 22 cents, up 16 per cent in early trading and Trivett’s price target is 29 cents, but he said that this should rise:
“The lower cash costs and accelerated cash flows will have a positive impact. Instead of getting $20 million a year over 12 years, Altura will get more like $45 million a year over 6 years.”
Altura is better known in mining quarters for its coal exploration and production expertise. Many of its senior management team, led by James Brown, had developed big coal assets in Indonesia for New Hope. The group now has its foot on the Tabalong Coal Project in South Kalimantan, which is proving difficult to develop because of permitting problems. The company also owns a third share in a private Indonesian coal company, Delta Coal, which is producing 1.5 million tonnes of the black stuff. We forgot to mention that Altura also owns some tenements with iron ore potential in the Pilbara.
Under the Radar admits to being confused about a company that is taking money from the Pilbara and putting it into Indonesian coal.
In response, Trivett says: “I view Altura as a vehicle to harvest cash,” says Trivett, which is certainly backed up by this latest announcement.