ASX Announcement 23 December 2014

C o r p o r a t e U p d a t e a n d N o n -C a s h I m p a i r m e n t

Successful cost reduction program maximises operating cashflow in challenging market. Atlas flags non-cash asset impairment of A$700M-$900M for H1 FY15.

Key Points

 Cost reduction program delivers 'all-in cash costs'^ of approximately A$65/wmt CFR China in

November

 Spot normalised EBITDA breakeven+ IODEX62 CFR China of approximately US$68/dmt based on

November costs

 Normalised EBITDA YTD is approximately break-even, excluding one-off restructuring costs

 Non-cash impairment of between A$700M-$900M flagged for the H1 FY15

 Atlas remains well within the contractual terms of its debt financing agreements

Atlas Iron Limited (ASX: AGO) provides a general corporate update and flags the expected non-cash impairment of its Pilbara assets.
While the current iron ore price environment presents a challenge to the junior and mid-tier iron ore producers, Atlas' successful and ongoing cost-reduction program has ensured that the Company has been able to maintain a largely cash breakeven operating position, excluding one-off restructuring costs.
Atlas Managing Director, Ken Brinsden said: "Atlas has worked throughout the calendar year to quickly reposition its cost base, in light of the changing iron ore market conditions. The Company has established a cost base to maximise operating cash flow despite the deteriorating pricing environment. The speed with which costs have been taken out of the business is a credit to the Atlas team and our contractors and suppliers."
"As a result, Atlas has very strong leverage to even a modest uptick in iron ore pricing."
Mr Brinsden said the expected non-cash impairment of the Company's Pilbara exploration and project assets is a reflection of the changing equity markets and assessment of asset values in light of revised forward pricing. The impairment, primarily in longer dated exploration and development assets, resets the values in the balance sheet.

"Atlas has a highly strategic Pilbara asset base, combining significant resources and port allocations, which provide strong options for growth over coming years as market conditions support" Mr Brinsden added.

Normalised EBITDA represents the Atlas realised selling price less all-in cash costs.

FY15 YTD and November cost data refers to unaudited end-of-month November management accounts.

+Spot normalised EBITDA breakeven defined by IODEX62 CFR China adjusted for iron units, spot product FOB discount, moisture, AUD:USD exchange rate of

0.815 less November 'all-in cash costs' of A$65/wmt CFR China. Final EBITDA

outcomes subject to future provisional pricing movements.

^'all-in cash costs' includes C1 production costs, royalties, freight, corporate and administration, expensed exploration and evaluation but excludes interest expense, capital expenditure and one-off restructuring costs.

Atlas Iron Limited

ABN 63 110 396 168

Raine Square, Level 18

300 Murray Street Perth WA 6000

PO Box 7071

Cloisters Square Perth WA 6850

P: +61 8 6228 8000

F: +61 8 6228 8999

E: [email protected]
W: www.atlasiron.com.au

Non-Cash Impairment

The Board of Atlas met today and advises that it expects to book a non-cash impairment of between A$700M-
$900M, before income tax, in its interim financial statements for the six months to 31 December 2014. This expectation follows a review of the carrying value of Horizon 1 and 2 projects in light of the current iron ore pricing environment and the subdued expectations of market participants. The impairment will be in large part a consequence of the original accounting values attributed to exploration assets arising from the higher price of Atlas shares used as consideration when many of the tenements were acquired (including share price appreciation following the announcement of the transactions) as part of the mergers and takeovers Atlas completed between
2009 and 2011. This compares to the lower value now currently ascribed by the market across these exploration assets.
The actual amount of the impairment is subject to forecast iron ore prices, forecast foreign exchange rates and market conditions which are all required to be assessed as at 31 December 2014, and is yet to be audited. Accordingly, a range has been provided at this time.
Following the recognition of the non-cash impairment charge, Atlas will remain in compliance with the terms of its contractual debt obligations.
Atlas' Horizon 1 development and production expansion plans are largely complete, with the commissioning of the Mt Webber Mine's Stage 2 crushing circuit underway. As a result of Mt Webber's Stage 1 completion and the recent program to minimise investment in new projects, capital expenditure will be minimal on a go forward basis in the current market.
Atlas maintains further growth options through its Horizon 1 and 2 exploration and development assets which can be exercised as market conditions support.

Corporate Update

Atlas implemented an ongoing and successful cost reduction program early in the 2014 calendar year and is now targeting annualised savings of between A$75-$100M by June 2015. As a result of substantial cost reduction achieved to date, there has been a material reduction in Atlas' all-in cash cost to China, with progress demonstrated by the following graph.

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Cost reduction targets were recently increased to A$75-$100M by June 2015. The Company is well on track to achieving those aims and affirms all-in cash cost guidance for FY15 of A$64-$68/wmt CFR China, targeting the lower end of that range.
As a result of cost reductions delivered to date, Atlas has materially lowered its cash breakeven price over time, as compared to the commonly quoted indices for delivered pricing (IODEX 62%). November production costs combined with the current exchange rate and product discounts sees Atlas' normalised EBITDA breakeven further reduced to approximately US$68/dmt, IODEX 62% basis.
Demonstrating the very strong leverage in Atlas' business, based on November production costs, current exchange rate and product discounts, a modest uptick in the headline iron ore price to USD$75/t CFR China (IODEX 62% basis) would deliver annual normalised EBITDA of approximately A$75M.
Atlas also recently welcomed the announcement by the State Government that it will provide royalty relief in the form of a 50% rebate on eligible haematite iron ore royalties for up to 12 months, subject to the iron ore price remaining below an average of $A90 per tonne over the period.
Atlas confirmed that it would progress discussions with the State Government to secure the rebate within the current quarter. Any concessions provided within the 12 months assistance period are expected to be fully repayable over a period of up to two years thereafter, in accordance with a schedule to be negotiated between Atlas and the Minister for Mines and Petroleum. Preliminary indications are that this will result in an improvement in Atlas' cash flow of approximately A$2-$2.50/wmt for the next 12 months, subject to headline price movements and final criteria for the royalty relief.
In addition to Atlas' diminishing operational and corporate costs, cyclical cost inputs outside of Atlas' control are also assisting Atlas' delivered costs. Both sea freight and the price of diesel, being significant components to Atlas' cost base, are favourably priced in today's market compared to historical prices. Atlas' expectation is that these opportunities will start to flow through to Atlas' cost base in the coming months.
Sea freight in the mini-cape market segment has reduced from approximately US$10.50/wmt FY15 YTD to spot rates as low as approximately US$7/wmt today.
Recent falls in global oil prices are likely to further reduce diesel costs. Every A$0.10/L drop in the cost of diesel supplied to Atlas and its contractors results in C1 production costs FOB that are approximately A$0.50/wmt lower.

Summary

Mr Brinsden paid tribute to Atlas employees, contractors and suppliers for the cooperative approach to reducing costs.
"It's in all of our best interests to reduce Atlas' costs, to ensure we remain competitive and have a sustainable
business and ongoing operations."
"We also appreciate the State Government's recognition of the benefit junior and mid-tier miners bring to Western Australia. The royalty relief package offered by the State Government is likely to make a material difference during the subdued pricing environment."
"Working together with our people, our suppliers and contractors and the State Government, we have positioned
Atlas to succeed in difficult market conditions."

Investor Enquiries:

Atlas Iron +61 8 6228 8000
Ken Brinsden, Managing Director

Media Enquiries:

Read Corporate +61 8 9388 1474
Paul Armstrong +61 421 619 084

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