Atlas Iron is confident that the iron ore price will trade around $US120 per tonne over the next half as Chinese demand continues to hold up.
The Pilbara-focused iron ore producer has swung back to profit after doubling revenue and upgrading its production targets due to a record first half.
Commercial director Mark Hancock said the Perth-based company was comfortable with current pricing above $US120 per tonne as Chinese construction begins to pick up following the Lunar New Year.
“It does approximate the consensus view as to where Chinese domestic production sits,” Mr Hancock told reporters on Tuesday.
“It’s not an absolute floor, but we certainly believe in the medium term it’s a price that things keep gravitating back to because there are a lot of tonnes in the market and a lot of reliance on those tonnes.”
Managing director Ken Brinsden said the Chinese steel market was in gross undersupply as the world’s second largest economy sustained its supply base by funding high-cost domestic mining.
“Of course, there’s expansion going on in seaborne trade but all it’s doing is displacing high cost Chinese production,” Mr Brinsden said.
Atlas recorded a first half net profit of $73.67 million, up from a $256 million loss in the previous corresponding period.
Revenue more than doubled to $588.2 million, from $288.3 million.
The company increased its full year 2014 production guidance to 10.2 to 10.7 million tonnes after shipping a record 5.1 million tonnes during the first half.
Once all of the company’s costs are taken into account, Atlas has a break even cost of around $75 per tonne.
The company said it is ramping up production and winding down expenditure on its Horizon 1 project, allowing it to consider capital management initiatives.
Atlas had $389 million gross cash on hand as of December 31.
Mr Brinsden said Atlas was now producing more than 10 million tonnes per annum and heading towards 12 million tonnes per annum.
He added that the company was encouraged by the interest being expressed by parties seeking opportunities to co-fund rail, port and mine developments in the Pilbara.
Atlas received an iron ore price of $US115.60 ($A128.34) per dry metric tonne during the half.
Its improved its cash costs were $US48.4 per wet metric tonne.
Shares in the company dropped 2.5 cents, or 2.3 per cent, to $1.06.
