AGO - Atlas Iron

AGO has collapsed because of many things and prime reason was a poorly constructed Feasibility without proper risk management rested on a pack of cards to get collapsed on poor iron ore price.
There was no robustness in the working strategies.
Personally I have lost a big investment on AGO and thought to reproduce some email exchanged between the AGO Chairman in November 2014 when he was still singing swan song.
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On Wednesday, 18 March 2015, 3:27, xxxxxx> wrote:


Hi David

Hope you are well.
I am still holding the paper showing me an investor (joke - it should say I am a looser) of AGO.
What a piece of paper to be cremated with my coffin stating Roger was an utter failure to bestow trust on a company Atlas Iron.
Every day is an excitement to read about share price of AGO and to see how shareholders are paying the top notched management who are not shy of taking pay cuts (as a minimum) by 80% to retain their job or to quit with grace.
Looks like my communication as a shareholder are not reaching the company chairman.
Regardless, I wish you all the best as the biggest shareholder but equally unfortunate with a leadership team who rose with the flow but now not able to demonstrate result when market is behaving towards south
Leadership comes when the ship is sinking .

Regards

vvvvvvvvvv





On Friday, 6 March 2015, 10:09, om> wrote:


Dear David
Good morning.
Another solid day for AGO.
It was so nice to see a miniscule investment from CEO Ken to purchase AGO shares. It was a token investment to demonstrate his faith on purchasing the shares at 20 cents and no matter how small the value could have been.
Today the AGO share has slumped again. I am now in a situation to treat my super investment on AGO as paper values.
All I can do use the paper to congratulate the great team who are managing the great company and creating values for shareholders.
Do I need to see a million dollar person to do it ? Probably a Fish and Chip seller should be able to turn this result over so many years and make it better.
Myself not compent to decide that is why I thought we have competent people to manage the company.
I want to be seen as correct without caveat through shareholders value. NO REPLY RECEIVED

Regards

XXXXX


On Saturday, 28 February 2015, 14:01, xx xxxxxx> wrote:


Dear David
Trust you are well.
Looking back I have had interaction with you in Nov 2014 with some hope for a miracle.
Now my investment on AGO has dropped down by 80% . I am not a billionaire like few to digest this like a pinch of salt but it has affected my super fund drastically.
I am not making any derogatory comment or frustration but congratulating you as the Chairman and largest single shareholder and our CEO Ken for an outstanding performance to achieve the following :
WA miner Atlas Iron made a record $1.1 billion dollar loss for the half year because of writedowns thanks to the falling iron ore price.

A mere 15% reduction on CEO salary is just peanut. It should be slashed proportionally with iron ore price if not more to show solidarity with the shareholders.

Ironically when price goes down we blame that to the price for making losses. When company makes price for higher price then credit goes to efficient management, prudent financial management etc . Interesting.

Congratulations again to you and your chosen team for an excellent reward to small and petty shareholders like me

Regards
xxxxx



On Monday, 10 November 2014, 21:59, xxxxxx wrote:


Dear Dave

Many thanks for your time to respond considering you are one of the founders (or the founder of AGO) and a major shareholder.

I would not deliberate and see the result of AGO's performance in next 6 months to shut my mouth excepting the following comments.

1. I did not make any derogatory or personal comments against Ken. I think while defending the CEO (of course you should do so being the Chairman) I have not missed your veiled threat. I am however not offended and commend you instead.

2. I have noted Ken is a hard worker and outstanding technician in your words . I would have been happier to hear from company chairman if Ken is also an astute strategic leader and smart driver. If all CEO positions are filled up by technicians and hard workers then there is no value for leaders or smart managers. There is nothing personal here but as an MBA and after delivering a large project more than $5 Billion saving $435 M over two years, probably I am competent to make a difference between a hard working technician and a smart leader with strategic direction and outcome. If I may draw an example then will look at Andrew Forest or Sam Walsh. But yes, AGO is only a small operator so comparison could be unfair here but one should aim high to lift the game.

3. Complacency does not help any one. The shareholde who joined 10 years ago may be complacence but those who joined few months ago and see their hard earned investment going south (exception of today and yesterday's rise - thanks to you, Ken and the team if it is going to be consistent) all I can do to write to the CEO and Chairman being our trusted leaders.

4. Without any prejudice you need to have an audit on the CAPEX quality and how the investment return is going to be at $70 per ton of iron ore. Risk mitigation etc etc.

Finally it is my personal interest with hundreds of small shareholders that AGO returns to the level we all are waiting and we all share champagane together.

Regards

xxxxx



=========================
dear XXXX

Thank you for your email. It’s helpful to continuously get feedback from shareholders.

Ken has taken a pay cut and there have been wage freezes across the company for three years and we have also reduced numbers of staff across all areas of the business from the board to all areas in the field.

Yes the fall in the share price is not acceptable. It has significantly effected a large number of shareholders small and large and this is very disappointing. Not surprisingly it has damaged the reputation of the company, the board and management.

Amongst all the commodities, iron ore remains in the top 3 performers in the last 10 years and with our infrastructure position we remain highly leveraged to upward movements in price. Given recent downward movement in share price and commodity price we possibly present the greatest leverage in the market right now. Unfortunately when the market perceives constant downward movement in the iron ore price it means we have the greatest exposure to this. This hurts.

The best way through this is to cut costs, communicate a plan and then deliver on it. There are opportunities for order of magnitude reduction in costs but they will only come through completion of an infrastructure agreement and the timing of this is uncertain. Until then it’s all about finding cumulative savings that help us to exceed expectations on guidance.

Over the last 5 years there has typically been some resurgence in the iron ore price in the lead up to new year. While uncertain we don’t see any evidence to preclude it from happening this year.

Ken is a remarkably hard worker who has made tremendous personal sacrifices for shareholders. He himself is an outstanding technician and leader and takes excellent advice from high quality advisors and makes decisions on that advice to achieve what he believes are the best possible outcomes for shareholders.

Please refrain from making derogatory comments in regard to his character.

Regards

David





Description: C:\Users\david.flanagan\AppData\Roaming\Microsoft\Atlas_Sig\signature.jpg
David Flanagan
Chairman
E: david.flanagan@atlasiron.com.au
D: 08 6228 8009
M:
Atlas Iron Limited
Level 18, 300 Murray Street, Perth WA 6000
PO Box 7071, Cloisters Square PO, WA 6850
T: 08 6228 8000 F: 08 6228 8999
W: www.atlasiron.com.au
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Dear Ken

I am a very small investor who put hard earned money in AGO shares on super fund.
Ironically this iron share is the only exception to go down the hill at a gallopping rate than other iron ore miners. FMG was exception today but AGO has been always faster rate and I lost more than 70% of my investment. I could have sold but your public statement on the strength of AGO disillusioned me and surely many idiots like me.

You are such an expensive CEO at the cost of shareholders money.
Where is your forecast and you can not just blame on China. What cuts have you done on directors fees or senior executives salary to start with and just not cutting employee strength alone.
Where is any public statement ?
How come you are so exception in giving such a poor performance?
Where is your market intelligence and moral courage ?
I am sure this email will never reach you and another fat cat person will respond on your behalf protecting his or her KPI.
PLEASE for God's sake how you are keeping head high on this and what assurance do you offer to small share holders like me ?
When share price rises by market movement then you and your EMT do not feel shy to take that their own credit and strategies etc etc.

Look forward to hear back from you before I burn all the share certificates.

Miner said:

Personally I have lost a big investment on AGO

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Commiserations on the loss, its the stock market and you know how this works..i recently had a 100% loser to so understand your disappointment.

Miner said:

Personally I have lost a big investment on AGO.
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I am sorry that you have had to suffer a loss (which by the looks of it may be permanent), I can tell by the emotion in those letters you have taken it rather rough.

One important thing to keep in mind though, is that it is largely not the fault of the management, But largely your fault for not understanding the basic economics of the business, and how this affects the investment outcome.

Atlas Iron management have never hidden the fact that they are a high cost producer, and given their small scale operations and infrastructure position, they have limited ability to reduce this cost over time.

I myself have a large investment in FMG (which is taking a beating at the moment), which I believe to have much better economics and far greater options to reduce costs over time, I avoided atlas because I could see it's weaknesses.

However if I prove to be wrong, and FMG did suffer a fate the same as atlas and I suffered a permanent loss, this is 100% my fault, it will be important for me to learn the available lessons, and not get emotional and play the victim game.

Diversification is important, I hope you weren't 100% Atlas.

Miner said:

Ironically this iron share is the only exception to go down the hill at a gallopping rate than other iron ore miners.

How come you are so exception in giving such a poor performance?

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The reason Atlas share price and business performance has suffered more than others producing the same commodity is related to production cost.

Companies with high production cost will have highly fluctuating profits/loss and therefore highly fluctuating share price.

let me give you an example with some simplified made up numbers.

lets assume Atlas produces Iron ore for $90 / tonne and Rio produces $20 / tonne (not actual numbers)

If the Iron ore price sits at $100, both make money, but if the price of Iron goes to $120 / tonne. Atlas profit would triple, because their profit on each tonne has gone from $10 to $30., this tripling in profit may see their share price double or triple.

However, Rio profit didn't double, they went from making $80/tonne to $110/tonne, their profits have only increased by about 40%, so they will probably see a share price gain, but nothing like the upside of the high cost producers.

But when it comes to an Iron ore price drop to $80, Atlas profits are completely wiped out, where as rio would still be making $60 / tonne. Atlas might close its doors and share price to $0, rio just reports a lower profit for a while.

When your investing in any commodity, you have to understand the effects of production cost, Sometimes high costs will work in your favour, but its a high risk game.

Phil Fisher explains this concept greatly in his 1975 edition of "Conservative investors sleep well"

Ben Graham explains it in the 1934 edition of "security analysis"

and Warren Buffet explains it in various shareholder letters.

It's a long understood principle of value investing, when we play with the concept and get burned it's our own fault. It doesn't just relate to mining companies, but any company who's products trade like commodities chemical companies, building materials, sugar and flour milling etc.

Unless you set prices because of branding or patents or monopolies, you have to be among the lower cost producers to have a safe position.

So_Cynical said:

Commiserations on the loss, its the stock market and you know how this works..i recently had a 100% loser to so understand your disappointment.

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Value Collector said:

I am sorry that you have had to suffer a loss (which by the looks of it may be permanent), I can tell by the emotion in those letters you have taken it rather rough.

One important thing to keep in mind though, is that it is largely not the fault of the management, But largely your fault for not understanding the basic economics of the business, and how this affects the investment outcome.

Atlas Iron management have never hidden the fact that they are a high cost producer, and given their small scale operations and infrastructure position, they have limited ability to reduce this cost over time.

I myself have a large investment in FMG (which is taking a beating at the moment), which I believe to have much better economics and far greater options to reduce costs over time, I avoided atlas because I could see it's weaknesses.

However if I prove to be wrong, and FMG did suffer a fate the same as atlas and I suffered a permanent loss, this is 100% my fault, it will be important for me to learn the available lessons, and not get emotional and play the victim game.

Diversification is important, I hope you weren't 100% Atlas.

Click to expand...

Value Collector said:

The reason Atlas share price and business performance has suffered more than others producing the same commodity is related to production cost.

Companies with high production cost will have highly fluctuating profits/loss and therefore highly fluctuating share price.

let me give you an example with some simplified made up numbers.

lets assume Atlas produces Iron ore for $90 / tonne and Rio produces $20 / tonne (not actual numbers)

If the Iron ore price sits at $100, both make money, but if the price of Iron goes to $120 / tonne. Atlas profit would triple, because their profit on each tonne has gone from $10 to $30., this tripling in profit may see their share price double or triple.

However, Rio profit didn't double, they went from making $80/tonne to $110/tonne, their profits have only increased by about 40%, so they will probably see a share price gain, but nothing like the upside of the high cost producers.

But when it comes to an Iron ore price drop to $80, Atlas profits are completely wiped out, where as rio would still be making $60 / tonne. Atlas might close its doors and share price to $0, rio just reports a lower profit for a while.

When your investing in any commodity, you have to understand the effects of production cost, Sometimes high costs will work in your favour, but its a high risk game.

Phil Fisher explains this concept greatly in his 1975 edition of "Conservative investors sleep well"

Ben Graham explains it in the 1934 edition of "security analysis"

and Warren Buffet explains it in various shareholder letters.

It's a long understood principle of value investing, when we play with the concept and get burned it's our own fault. It doesn't just relate to mining companies, but any company who's products trade like commodities chemical companies, building materials, sugar and flour milling etc.

Unless you set prices because of branding or patents or monopolies, you have to be among the lower cost producers to have a safe position.

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Dear So Cynical and Value Collector

Thanks for your compassion and advise.
I am glad to see both of you have made genuine efforts to provide rational response.
I do agree my email communication could be seen as emotive . Unfortunately when some one's house is on fire with family jewels then head and emotion go together. Ideally it should not and that's why we all read about Buffett but there is only one Warren Buffet

Folks
My last message was incomplete and went too quick with phone button.
Any way thanks to So Cynical and Value Collector for participats.

Yes, I did not put whole of my money into AGO but as any bad investment decision, it was a significant loss to digest.hu
If I see myself as a sadistic one then there are other major shareholders who would have lost millions so I look less silly than those big fishes.

skc said:

The suspension of ASX trading has NOT been lifted.

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Sorry for my oversight there skc but one must pay the price for ones stupidity:-

Miner said:

Folks
My last message was incomplete and went too quick with phone button.
Any way thanks to So Cynical and Value Collector for participats.

Yes, I did not put whole of my money into AGO but as any bad investment decision, it was a significant loss to digest.hu
If I see myself as a sadistic one then there are other major shareholders who would have lost millions so I look less silly than those big fishes.

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Mate, all you can do is learn from the loss, I hate buying into resources as I have been burnt.
However, I still do, but I say to myself all the time,"watch the price, watch the price, take the profit, take the profit".

Non of the miners are a buy and hold proposition, not even BHP, RIO.IMO

I recently bought STO at $7, they flew upto $8.50, I got greedy.
They went down to $7.20 cum dividend.
Upto $8.30 again, here we go I said.
Down to $6.90 ex dividend.

See we don't learn.

sptrawler said:

Mate, all you can do is learn from the loss, I hate buying into resources as I have been burnt.
However, I still do, but I say to myself all the time,"watch the price, watch the price, take the profit, take the profit".

Non of the miners are a buy and hold proposition, not even BHP, RIO.IMO

I recently bought STO at $7, they flew upto $8.50, I got greedy.
They went down to $7.20 cum dividend.
Upto $8.30 again, here we go I said.
Down to $6.90 ex dividend.

See we don't learn.

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Miner...
Good advice from VS and VC... but as with anything, it's easier to be rational when you're outside and emotional didn't get the better of you.

We all make mistakes, and not knowing anything about Atlas, who knows if it was a mistake or just a bunch of bad luck coming together at you and your holding. But yea...

Miner said:

Look forward to hear back from you before I burn all the share certificates.

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Miner,

I hope you have calm down a bit and I hope you are able to get over it soon.

AGO built a business encompassing iron ore price risks. May be a calculated risk (no one predicted this level a mere 12 months ago) but a risk none the less. AGO investors bear that risk by buying the stock, and they enjoy the potential rewards when things go AGO's way.

Management in all companies enjoy a degree a buffer (and as agency risk to the investor)...The essence of most corporate culture is always about being bold and ambitious. If other things fall hig/her way, the entrepreneur makes it big. No entrepreneur ever becomes successful by being ultra risk adverse. That's why there are big white elephant projects (LEI's cost overruns), M&A at peak of the cycle (e.g. Rio buying Riverdale) etc etc.

Keep your share certificate (or at least your trading record). You never lose 100% of your investment. It just becomes an tax asset...

All the best.

luutzu said:

We all make mistakes, and not knowing anything about Atlas, who knows if it was a mistake or just a bunch of bad luck coming together at you and your holding. But yea...

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No mistake and no bad luck. Buying and holding downtrending stocks is not a mistake and crying spilled milk after taking the 'larger' loss is a cop out.

Wysiwyg said:

No mistake and no bad luck. Buying and holding downtrending stocks is not a mistake and crying spilled milk after taking the 'larger' loss is a cop out.

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We have all had losses at one time or another, it is how we handle it and manage the situation that is important.

eg. how has it effected your psycology ?

is your mind back on the job. Before taking any trade you need to have an idea how far it is likely to move up but also how far can it move against you if things go pear shape.

I never trade if I do not know these two positions ever!!

I have to agree with you Wysiwyg, never hold a downtrending stock unless you aim to short it.

Understand the direction of the stock or market and take a position to suit.

I always make it a rule to get out if any stock moves against me by 15% regardless because obviously my analysis is somewhat incorrect so will tale a loss and be ready to fight another day when that opportunity arises which it always does.

In my opinion it is always about timing and being patient.

Me again.
I am a bit overwhelmed with comments on my emotion at the financial loss of AGO. Without making any further comments excepting lessons learnt and paid a little over $22 K almost one year's school fee for my kid. Should have spent the money in the school .
I noticed MIN got hammered due to AGO and that would be an interesting chapter for MIN with FMG is also deep down. Can not forget the arrogance of Chris Ellison (paid some $17 M for his house in Perth) and smoking in a no smoking area of his own office. Who knows what story MIN will unfold
Nonetheless, I am moving on now and thanks to Piggybank, Sprawler, Iuutzu, SKC, Wysiwyg and Trhiathele for your comments - all read and taken on board.

Looks like they have wiped out MCS in the process as well.

pinkboy

Miner said:

Me again.
I am a bit overwhelmed with comments on my emotion at the financial loss of AGO. Without making any further comments excepting lessons learnt and paid a little over $22 K almost one year's school fee for my kid. Should have spent the money in the school .

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You can always send the kids to a good public school and get the money back
I haven't spend a dim on private school for my kids and they doing well.

Good disciplined kids will do well in any environment

There is a song for every person and every company.

This one is good bye my love good bye.

https://www.youtube.com/watch?v=7o7F-mdT4pE

Commiserations Miner on such a large loss. Years ago I held a company that I bought a lot of shares in that went from my buying price of 2.6c to 19c but I failed to take a profit and ended up selling at 1.9c. That loss sharpened my mind and I swore never again.

If this loss sharpens your mind then it may be worth it. Look at how you made the decision and never make it again. I haven't looked at an iron miner for years because the price was dropping. Someone taught me a few years ago, identify the big trends i.e. look at the forest, not just the trees.

AGO has announced it is still solvent. Could be opportunity to at least offload.

pinkboy

pinkboy said:

AGO has announced it is still solvent. Could be opportunity to at least offload.

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Well... AGO raising capital. $180m @ 5c. Yes... that's 3.6B news shares (vs current share on issue of 0.92B). Everyone is chipping in. Contractors working on reduced rates, getting paid on a sliding scale relative to the iron ore price. The WA government is reducing the royalty. I am guessing (hoping) that management is taking a pay cut. And now it's shareholder's turn. There's also 1:1 free attached option @ 7.5c which means a lot more dilution if things go well.

AGO was suspended early April @ 12c. The stock will remain suspended until the raising is completed. So it's bit like saying "If you want to see any of your existing shares, give us some money".

Where will they be after the exercise? They reckon the breakeven cost is US$50/DMT. Annualised production is ~14MT. So at current spot price ~US$60, there's plenty of free cash flow even if you take a chunk of profit share for the contractors.

Let's say they make $5/DMT and make $50m NPAT.... they would still have ~$100m debt (rough estimate). Would they trade EV/NPAT of 10x (again, total guesstimate)? If so you get $400m equity value over 4.5B shares, or ~9c per share.

But the flow from this very significant volume of new shares will likely drown out any meaningful valuation for some time.

And they better hope that the iron ore spot price doesn't fall below current level for the next 6 weeks until the raising is completed.

skc said:

Well... AGO raising capital. $180m @ 5c. Yes... that's 3.6B news shares (vs current share on issue of 0.92B). Everyone is chipping in. Contractors working on reduced rates, getting paid on a sliding scale relative to the iron ore price. The WA government is reducing the royalty. I am guessing (hoping) that management is taking a pay cut. And now it's shareholder's turn. There's also 1:1 free attached option @ 7.5c which means a lot more dilution if things go well.

AGO was suspended early April @ 12c. The stock will remain suspended until the raising is completed. So it's bit like saying "If you want to see any of your existing shares, give us some money".

Where will they be after the exercise? They reckon the breakeven cost is US$50/DMT. Annualised production is ~14MT. So at current spot price ~US$60, there's plenty of free cash flow even if you take a chunk of profit share for the contractors.

Let's say they make $5/DMT and make $50m NPAT.... they would still have ~$100m debt (rough estimate). Would they trade EV/NPAT of 10x (again, total guesstimate)? If so you get $400m equity value over 4.5B shares, or ~9c per share.

But the flow from this very significant volume of new shares will likely drown out any meaningful valuation for some time.

And they better hope that the iron ore spot price doesn't fall below current level for the next 6 weeks until the raising is completed.

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SKC et. al
Further to add that now David Flanagan has returned as the MD with a small salary of plus $650K plus 40% bonus on what basis ? It probably gives him the loss catch up from the downfall . In addition the previous MD will be remained as an ED with what take home salary ? Eventually now AGO has said, the previous MD was no good but he will still get paid (not disclosed yet) same salary as MD . So per year there will be $1.3 M will be distributed to these two gentlemen. 5 cents share price on what valuation? They are just printing share certificates and eventually will show the middle finger to the share holders who bought the shares at 70 cents or more.
What is the role of AISC here ? Just by stander ?
If SKC's calculation of $100 M debt any true to reality, AGO worse days are just coming.

Welcome back AGO... I am sure no existing holder or anyone who participated in the capital raising is particularly thrilled to see the stock @ 3.7c. But at least it gives anyone a chance to sell out and claim some the tax loss

Where to from here is anyone's guess. Iron ore market appears to be a race to the bottom... can AGO paddle fast enough to stay afloat?