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atlas racing to increase iron ore production

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    Atlas racing to increase iron ore production
    TOP News

    Published 11:09 PM, 11 Nov 200

    By James Regan of Reuters

    Australia's smallest iron ore producer, Atlas Mining, is racing to increase production despite a declining market, defying a massive contraction underway among bigger rivals that face lower sales to steel mills.

    "It's hard to see, but there are companies out there with meat still on the bone," Atlas managing director David Flanagan told Reuters in an interview.

    Atlas is readying its maiden one-off shipment of 67,000 tonnes of ore for a buyer in China, who Mr Flanagan hopes to recruit as a long term buyer despite the bleak market outlook.

    "We don't have a binding agreement or anything, but there are indications the party will continue to buy at least part of what we mine," Mr Flanagan told Reuters.

    The world's two biggest producers, Brazil's Vale and Australia's Rio Tinto Ltd are cutting out a combined 50 million tonnes of ore output between now and the end of the year because China no longer needs it.

    Rio chief executive Tom Albanese on Monday predicted a short sharp slowdown in China, with demand rebounding over 2009.

    Initial euphoria fades

    However others aren't so sure of a quick demand recovery. They warn against putting too much faith in China's $US600 billion economic stimulus package, announced on the weekend, saying big infrastructure initiatives will take another year to fully take effect and would have been partly priced in weeks ago.

    In the absence of a steady buyer, Atlas has to sell its ore at the prevailing spot price, which is only about half what producers like Vale, Rio and BHP Billiton with long-term supply pacts get.

    Chinese spot iron ore prices have tumbled from a record $US197.50 a tonne in March to $US63.50 last week, according to data from the Metal Bulletin trade journal.

    Analysts expect contract prices to tumble too, ending six straight years of price hikes for miners, the last one by up to 85 per cent.

    At least 20 per cent of the vessels most commonly hired to haul iron ore and coal to China are sitting empty because steel makers are cutting output, according to Mark Pervan, Australia & New Zealand Bank senior commodities strategist.

    "I'll looking at downgrading my forecast for iron ore, which will call for a 40 per cent decline in contract prices next year," he said.

    In outback mining parlance Atlas is a "minnow."

    The Perth-based miner is one of a handful of start-ups seeking to ship ore to China from smaller deposits in the outback, until recently the exclusive domain of Rio and BHP.

    Other newcomers, such as Fortescue Metals Group and Mount Gibson Iron, have downgraded shipping targets. But Mr Flanagan says Atlas, fully-funded with $100 million ($US67 million) in the bank and no debt, is in better shape than most.

    By this time next year, Mr Flanagan hopes to have shipped about 1 million tonnes of ore, all for feed in Asian steelmaking furnaces. By comparison, even after downsizing, Vale will produce about 270 million tonnes and Rio 170 million tonnes.

    "By 2010 we're targeting 3 million tonnes and I don't think that is unrealistic even in this market," Flanagan said.

    Despite mounting evidence China is out of the market for new suppliers, Flanagan said his focus is on building sales there.

    "The Chinese are being very careful where they spend their money right now," he said. "But we see the market turning up at some point...When, I can't say, but eventually."

    Mr Flanagan said the fall in activity across the Pilbara iron belt in west Australia presents opportunities.

    "We're finding more competition among the service providers for our business than there was just a few months ago," he said.

    "And the Pilbara is no longer the place to go for an instant job, so we have more leeway in who we hire. Also, there's more capacity in the infrastructure to get ore to the ships, which lowers costs."
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