SYDNEY, April 27 (Reuters) - Australia's Atlas Iron Ltd AGO.AX averted collapse on Wednesday after shareholders approved a debt-for-equity swap that will hand 70 percent of the company to creditors amid a recovery in iron ore prices.
Chairman Cheryl Edwardes had warned ahead of an extraordinary shareholders' meeting of a "high risk" that Atlas would be placed in administration, a form of bankruptcy, unless the deal went ahead.
Atlas mines about 14 million tonnes of iron ore a year in the Pilbara region of Western Australia, where it is dwarfed by rivals Fortescue Metals FMG.AX , BHP Billiton BHP.AX BLT.L and Rio Tinto RIO.AX RIO.L , who control the majority of Australia's 700-million-tonnes-a-year export market.
Tumbling iron ore prices in recent years forced Atlas to lay off two-thirds of its employees, suspend mining, and seek the support of its suppliers to get back in production, underscoring the difficulties faced by smaller miners carrying high debt.
Iron ore prices have galloped almost 50 percent this year, while Atlas has cut its cash cost of production to A$49 ($37) a tonne from A$66 18 months ago, Edwardes said.
"This significantly lower cost base, which stands to be reduced further by the interest savings stemming from the debt restructure, enables Atlas to better withstand any future iron ore price volatility," she said.
Iron ore .IO62-CNI=SI stood at $64.10 a tonne on Wednesday, although many in the industry believe the price recovery is only temporary owing to a supply glut.
Citi analysts expect iron ore to average $38 a tonne in the fourth quarter, while an Australian government forecast pegs iron ore at $45 a tonne by the end of December. debt-for-equity swap will put 70 percent of the company's stock in the hands of 71 lenders in exchange for a 48 percent reduction in its loan debt to $135 million.
Arrium Ltd ARI.AX went into administration on April 7 as iron ore and steel prices dropped below its cost of production. ($1 = 1.3096 Australian dollars)