Aquila facing a tough choice – sell assets to stay alive

Aquila has a series of large scale ambitious resource project but precious little income.

If timing is everything in business, this would have to be one of the worst periods in history to be a resource company with no production.

Aquila Resources, a group with all costs and little income, has been dogged by disputes with joint venture partners and delays in development, earning it the unenviable title as one of the dogs of 2013.

This morning, however, saw a welcome lift in its share price, of almost 4% on the back of its quarterly production report.  

The share price boost, however, was related more to cutbacks than expansion. Redundancies in its corporate offices in Perth and Brisbane along with layoffs at its two main resource developments, the ambitious West Pilbara Iron Ore project and its Eagle Downs hard coking coal project, were seized upon by investors.

The go slow at its massive West Pilbara project – a mine, rail and port proposal – remains in place following a dispute over expenditure budgets with its joint venture partner AMCI that blew up in April, much to the relief of investors.

“Minimum expenditure continues to apply,” it announced this morning.

It is possible the company will shift attention to the Eagle Downs hard coking coal project  – adjacent to BHP Mitsubishi’s Peak Downs operation – despite the downturn in coal demand and prices. It has ample cash reserves to fund the operation in the near term with $600.5 million in cash, liquid assets and no debt.

Aquila's income in the December half – it earned $227 million – came almost exclusively from asset sales, particularly its half share in the Isaac Plains coal mine.

But with a series of large scale projects across Australia and Africa, the pressure will mount on the company to continue its asset disposals if it wants to bring any of its developments to production, a tough choice in a weak market being driven even lower by the massive asset disposal programs undertaken by BHP, Rio Tinto and the other majors (see Tim Treadgold's Is it iron curtains for small producers?).

In addition to Eagle Downs, Aquila has a wholly-owned coal development in the Bowen Basin, an iron ore project south of Johannesburg along with a South African manganese project.

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