Mount Gibson Iron has booked a $13.3 million half-year net profit amid a deteriorating iron ore environment.
Mount Gibson Iron has booked a $13.3 million half-year net profit amid a deteriorating iron ore environment.
The result is a 59 per cent drop from the previous corresponding period's $32.1 million and included an unrealised foreign exchange derivatives mark-to-market loss of $54.8 million.
Revenue for the six months to the end of December was up 32 per cent to $232.9 million.
Iron ore sold climbed 8 per cent to 2.39 million tonnes, up from 2.59mt.
Shares in the company climbed 1.5c to 47c at 13:06 AEDT.
The announcement is below:
Mount Gibson Iron Limited ("Mount Gibson") (ASX Code MGX) is pleased to announce a net profit after tax of $13.3 million for the 6 months ended 31 December 2008.
The 31 December 2008 half-year Net Profit result of $13.3 million was achieved in a deteriorating iron ore volume and price environment. The two quarters that made up the half-year contrasted markedly with each other, with operational performance, ore sold and prices received in the first quarter delivering record quarterly revenue and profit, which was subsequently eroded in the second quarter as a result of rapidly deteriorating iron ore market and the failure of a number of existing customers to collect allocated iron ore cargoes in breach of their agreements with Mount Gibson.
This failure of a number of customers to honour their agreements in the second quarter placed Mount Gibson under significant operational and financial strain, causing the company to undertake operational changes focussed on reducing cash expenditure whilst attempting to sell existing iron ore production.
Consequently, the Extension Hill Hematite Project was suspended and operations tentatively deferred to 2010, waste development at Tallering Peak was deferred until the second half of 2009 and waste development and project development at Koolan Island's Main Pit was deferred indefinitely. Mount Gibson managed to stem significant cash expenditure as a result of its actions, however it was unfortunate these risk mitigating strategies led to approximately 200 employee terminations.
The continued refusal of certain existing customers to collect allocated cargoes placed Mount Gibson's going concern status in jeopardy and as a consequence Mount Gibson sought to:
1. negotiate short term ore purchase agreements;
2. negotiate medium term ore purchase agreements to replace existing agreements that had been terminated;
3. negotiate long term ore purchase agreements for all of Mount Gibson's existing and future production from Tallering Peak, Koolan Island and Extension Hill; and
4. raise sufficient capital to ensure existing operational plans could be executed.
Short term ore purchase agreements were executed with APAC Resources Limited (APAC) and Shougang Concord International Enterprises Company Limited (Shougang Concord) for Mount Gibson's available production to the end of December 2008 whilst shareholders approved:
1. Medium Term and Long Term Offtake Agreements with APAC and with Shougang Concord;
2. the underwriting of the rights issue by APAC and Shougang Concord to raise A$96 million; and
3. the placement of 110 million Mount Gibson shares to Shougang Concord to raise A$66 million.
The rights issue and the placement to Shougang Concord were completed in early January 2009, placing Mount Gibson in a sound financial position.
Mount Gibson was required by its debt facility providers to hedge a minimum of 50% of the next 12 months' forecast US$ receipts and 70% all of senior debt interest as part of the risk management framework. As a consequence of the failure of some existing customers to collect cargoes resulting in significantly reduced US$ revenues for the 2008/2009 financial year and the significant deterioration in the A$:US$ exchange rate, Mount Gibson has recorded an unrealised foreign exchange derivatives mark-tomarket loss of A$54.8 million. In February 2009, Mount Gibson signed a Term Sheet and Mandate Letter with its Banking Syndicate to amend the Senior debt facility and Contingent Instrument facility and to roll forward forecast excess US$ foreign exchange forward contracts in the 2008/2009 financial year amounting to US$185 million into subsequent financial periods. This will reduce Mount Gibson's obligation to cash settle any forward contracts not needed for coverage of monthly operational US$ income in the period January to June 2009. This amended US dollar foreign exchange forward profile will ensure, given forecast iron ore sales, sufficient USD will be generated to cover the rolled hedge position. The Amended Facility Agreement is currently being finalised and is expected, subject to final Credit Committee approval, to be signed in March 2009 with conditions precedent normal to this type of facility which are expected to be satisfied shortly thereafter.
Mount Gibson has successfully navigated through a very difficult global down turn in iron ore demand and a rapidly deteriorating world financial market. The short to medium outlook for the iron ore market appears volatile however Mount Gibson has positioned itself well to withstand this market uncertainty and volatility.
