PERTH (miningweekly.com) – Iron-ore miner Atlas Iron on Wednesday told shareholders that its forward sales arrangements were providing the company with a measure of near-term protection against the falling iron-ore price.

Currently, some 2.06-million tonnes of production during the September quarter, and 0.4-million of production for the December quarter were subject to some form of price insulation. This equated to about 70% of the targeted production in the September quarter, and 10% of the targeted production in the December quarter.

MD David Flanagan said that the pricing strategies sought to reduce the company’s exposure to iron-ore price volatility while Atlas completed its A$180-million capital raise and its production ramp-up.

“This approach provides Atlas and investors with greater certainty in respect of the prices we will receive and therefore the extent of our margins and cash flows in the near term.”

The strategies included iron-ore put options, which provide a floor price while allowing Atlas to retain full exposure to any price rise through a floating-priced physical sales contract. This meant that for the tonnes covered by the puts, the price received by Atlas could not be less than that of the put price, even if the index price fell below the put level.

Puts were in place for about 460 000 t of Atlas product, and if exercised, would see Atlas realise prices of between $53/t and $54/t for 300 000 t in July, as well as $54/t for a further 100 000 t in August.

The miner also had in place fixed price sales contracts over some 900 000 t of product. The forward sales comprised 300 000 t of lump and 600 000 t of fines to be filled between July and October.

Furthermore, the company had a zero cost cap/collar transaction, under which a floor and ceiling price had been set at a 62% iron equivalent level. This meant that Atlas was assured of realising no less than the floor price and no more than the ceiling price for the tonnes covered under this transaction.

Some 1.1-million tonnes worth of sales were covered by this pricing methodology, with delivery to occur between July and December. The floor price would range between $50/t and $52/t, while the ceiling price would range from $55/t to $60/t.

Atlas has recently resumed mining operations at its Abydos, Wodgina, and Mt Webber mines, and was hoping to reach rate of production from its three Pilbara iron-ore mines of 14-million to 15-million tonnes a year by year-end.