The Tyranny of Timing: Western Desert Resources Goes Under

Australian Iron Ore hopeful, Western Desert Resources (ASX:WDR) collapsed on September 5, as administrators were called in by its major creditor Macquarie Bank. At the time of the decision, the market capitalization of the company was close to A$90m, roughly similar to the debt owed to Macquarie, however its cash position was reported to be almost negligible with significant other operating debts.

The company had been in negotiation for some time with its creditors, however it was reported that Macquarie had withdrawn its support on September 2, forcing the company into a trading halt in advance of the administration announcement on Friday.

Western Desert had been well advanced in the ramp up of its Roper Bar iron ore mine in the Northern Territory of Australia. First ore had been barged to ships back in December 2013, but ever since, the company had experienced transport issues that had negatively impacted ramp up to its nameplate 3 million tonne per annum capacity. The project utilized a dedicated 165km haul road to the existing Bing Bong loading facility on the Gulf of Carpentaria, for barging out to Panamax ships moored in deeper water. Unfortunately both components of the infrastructure network experienced problems. Firstly, the haul road proved inadequate for the weights and tonnages of trucks during the northern wet season early in the year, and second, the chosen barging contractor was unable to meet tonnage targets. The predictable result was lower production and higher costs - as the company was mining ore that it could not transport or sell - at precisely the wrong time.

Clearly the soft iron ore price has not helped, however it is perhaps premature to suggest that as the only issue. Working capital, or lack of it, seems key, stemming from several sources.