Ground Breakers: Hancock collecting $225 million cheque from Atlas Iron as iron ore rises
Gina Rinehart has raked in her first millions from Atlas Iron, the $427m acquisition she won out over Andrew Forrest’s Fortescue Metals Group (ASX:FMG) and Chris Ellison’s Mineral Resources (ASX:MIN) in 2018.
The $225 million dividend cheque to the Rinehart chaired Hancock Prospecting came despite a drop in earnings after tax from almost $1 billion ($938m) in 2020-21 to $302m in FY22 amid a drop in iron ore prices. Also impacting was the decision to invest more than $700 million in growth options including the $605m development of the McPhee Creek project due to be commissioned in the middle of next year.
$46 million will be spent on a feasibility study on the long-dormant Ridley magnetite project with another $60.5m being pumped into upgrades at Atlas Iron’s Utah Point stock yard.
Unsurprisingly, as these Hancock group results announcements are wont to do, barely veiled criticisms of the Federal Government’s new IR policy dotted the commentary in the results report.
Atlas CEO Sanjiv Manchanda raised the barely believable scenario of a hypothetical six-week Pilbara wide strike, costing $15 billion “or more, reducing tax revenue, royalties and payments to the indigenous peoples who rely on such payments”.
Rinehart said “when mining does well, Australia does well”, using her statement to make note of the partnership with Nyamal indigenous contractor East West Pilbara in building the new Miralga mine in a JV with Ozland.
Now 100% owned by Hancock, Atlas increased shipments of iron ore by 1% from 9.7Mt to 9.8Mt, paying $81m in State royalty payments and $47m in port charges.
That was down on $93m and $65m respectively in 2021, with Atlas’ average realised iron ore price sliding 20% from US$134/dmt during the boom year of 2021 to US$107/dmt, with revenue falling 22% to $1.32b and operating cash generation nearly halving from $1.02b to $591m.
Rinehart’s Hancock Prospecting, which holds a majority 70% stake in the Roy Hill iron ore business, made a record Australian private company profit of $7.33 billion in 2021.
Enthusiasm in the iron ore market has defied concerns about China’s Covid woes and protests, with the Singapore contract poking its head above US$100/t this morning.
It was only a month ago that prices dived to 2022 lows in the high US$70s.
Physical demand signals haven’t been great, but ANZ’s Felicity Emmett said Chinese property support was fuelling excitement in the iron ore market.
“The People’s Bank of China cut the reserve ratio requirement by 25bp on Friday, following the State Council’s suggestion that monetary tools will be used to maintain liquidity,” she said in a note.
“China also removed restrictions on fundraising used by developers in the past. They will now be able to raise capital via equity markets that can then be used for debt repayments and acquisitions.
“This follows earlier this month the release of a 16-point plan which it hopes will boost the real estate market.”
Other commodity markets weren’t supported so strongly, with copper and gold prices down amid a run on the US dollar.
Gold producers were red all over, but a strong morning for the Pilbara iron ore majors led the materials sector to a 0.49% gain.