Mount Gibson faces $950 million writedown

Iron ore miner Mount Gibson has announced a $950 million writedown due to the low price of iron ore and the closure of its Koolan Island mine.

As part of its December quarterly report, Mount Gibson said its half-year results will include a non-cash impairment of between $850m and $950m before tax.

Mount Gibson CEO Jim Beyer said the result was due to the low price of iron ore and failure of the Koolan Island seawall.

“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,” Beyer said.

The price of iron ore fell to a new five-year low this week, last closing at $US62.80 a tonne.

Adding to Mount Gibson’s pain, its Koolan Island hematite operation was flooded last year after pit wall instability combined with high tide caused a section of the wall to collapse.

The company was forced to shut the operation as a result and stand down 200 workers.

Beyer said the company was still assessing potential fixes for the Koolan operation.

Mount Gibson delivered $72 million in ore sales revenue in the December quarter, compared with $117 million in the previous quarter.

Iron ore sales for the quarter totalled 1.236 million wet metric tonnes, and 3.1 Mwmt for the December half, reflecting reduced sales from Koolan Island.

Despite this, the company increased its sales guidance for FY2015 to between 4.8-5.2 million tonnes on the back on a strong performance from Extension Hill mine.

More job cuts at the company are expected, with around 20 corporate roles axed to date as a result of cost-cutting initiatives.

Beyer said the company remains in a very strong financial position with substantial cash reserves and negligible debt.

“With efforts at Extension Hill continuing to focus on efficiencies and unit cost reductions to ensure the operation maintains a positive cashflow, and near term expenditure significantly reduced at Koolan Island and the Perth office, Mount Gibson has significantly greater flexibility to adapt to changing circumstances,” Beyer said.

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