West Perth-based iron ore miner Mount Gibson Iron has flagged an $850 million to $950 million impairment after the company put its Koolan Island mine on care and maintenance in December.
West Perth-based iron ore miner Mount Gibson Iron has flagged an $850 million to $950 million impairment after the company put its Koolan Island mine on care and maintenance in December.
The company shipped 331,000 wet metric tonnes of iron ore from Koolan Island in the December quarter, but no shipments were made after October due the failure of a sea wall in November, which led to flooding of the main pit.
As a result, revenue for the quarter dropped to $72 million, down by $45 million compared with the previous quarter.
Koolan Island was put on care and maintenance shortly after the incident, with 200 workers losing their jobs.
However, Mt Gibson has since identified about 400,000 tonnes of accessible material on the northern side of the island, which the company says will require the retention of about 125 personnel.
“This limited mining campaign in Acacia East has commenced, with all sales of Acacia East material, including existing stock piles, expected to be completed by the end of June,” Mt Gibson said in a statement.
“At current spot prices and exchange rates, the company expects the mining and sale of this higher-silica material to generate a gross cash margin of about $5 million to $10 million.”
The company also reported a 20 per cent increase in ore sales from its Extension Hill hematite mine, located south of Geraldton, to 847,000t, which has helped lift the company’s sales guidance for the 2015 financial year to between 4.8 million tonnes and 5.2mt.
Mt Gibson’s corporate office has also been hit by restructuring costs, with about 20 roles being affected, the company said.
“Corporate redundancy costs are captured within the company’s $11 million total redundancy cost estimate,” it said.
Chief executive Jim Beyer said the continued decline in iron ore prices, coupled with the Koolan Island flooding, made the December quarter a very challenging time for Mt Gibson.
“These factors have necessitated significant reductions in the company’s workforce and will unfortunately require a substantial non-cash impairment to be recorded in our upcoming half year financial results next month,” he said.
“However, the company remains in a very strong financial position with substantial cash reserves and negligible debt. We have responded diligently and promptly to preserve capital and further reduce costs while we assess the potential way forward at the Koolan Island operation.
“With efforts at Extension Hill continuing to focus on efficiencies and unit cost reductions to ensure the operation maintains a positive cash flow, and near term expenditure significantly reduced at Koolan Island and the Perth office, Mt Gibson has significantly greater flexibility to adapt to changing circumstances.”
After a $44 million dividend payment, a $15 million fleet and equipment payment, $6 million for redundancies and $5 million in settlements, the company held onto $354 million in cash in the December quarter.
Shares in Mt Gibson were 1.3 per cent lower at 22.7 cents per share at 12:20pm.
