Atlas South Sea Pearls hit as eurozone crisis dampens demand

[Kevin Canning]

WITH only a couple of sleeps to go until the end of a year most investors would like to forget, the insidious and creeping effects of the eurozone crisis continue to be felt in unanticipated ways.

This morning's victim is pearl producer Atlas South Sea Pearls, which farms the treasured transmogrified oysters in a number of Indonesian locations.

In a similar yarn to the retailers, Atlas was travelling OK until the third quarter. "Up to October of this year, Atlas achieved a steady increase in pearl prices with strengthening demand," the company reports.

"However, in the fourth quarter, the flow-on effects of the deepening eurozone crisis began to materially affect the demand for wholesale pearls.

"This, combined with some pearl producers releasing high volumes of pearl inventory, has placed considerable negative pressure on the pearl market, forcing Atlas to discount in order to maintain turnover."
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While it's understandable that demand for such luxuries would stall in uncertain times, the pearling game had already fallen on hard times, with prices collapsing after the GFC.

In 2007, Atlas was receiving an average $75 a pearl, compared with about $40 now.

The quirk of pearl demand is that it's driven predominantly by the Japanese, who have been shaken (often literally) by their own issues this year.

The pearl downturn has already claimed a noteworthy casualty: Arafura Pearls, Atlas's listed peer entered insolvency in April this year owing creditors $6m.

Arafura, which farmed wild oysters locally, had the biggest quota behind the private Paspaley dynasty, but that didn't help them when the market turned.

Atlas now says its projection of "normalised EBITDA" of between $1.5m and $2m for the year is unlikely to be achieved, while actual revenue will fall shy of the budgeted $13.8 by $1.7m.

Despite the vicissitudes, Atlas plans to increase its output by 80-100 per cent over the next five years, which will require further funds of $6.5m and thus another capital raising.

Criterion last covered Atlas in October 2007, when we rated the stock a hold at 41c. "Arguably the stock doesn't have the same upside as Arafura," we unwisely opined at the time.

Our rating is under REVIEW, but this swine is inclined to pass over this pearl for the time being.

Original Article: http://www.theaustralian.com.au/busi...-1226231803028

[Ramona]

That is quite a dramatic decrease in pearl prices. I hope they are prepared for what is going to come in the next three years.

[Mikeyy]

I think this story has a lot of misinformation. But that is too bad for Atlas.

[Caitlin]

The Pearl Prof shoulda picked up this story. He always seemed so accurate on the SS Pearl info. He might had an opinion too.

[R&B]

Mikey you are right about misinformation but I also see contradictions.

I personally wish that share traders would leave pearl farming alone.

[Lagoon Island Pearls]

I personally wish that share traders would leave pearl farming alone.

Agreed.

It's way too easy to blame the economy when austerity, advancing technology and online sales have brought down consumer prices in general.

[R&B]

Have a look in the Pearl Industry News section and you will see that this is the same "Mob" that lost 32,000 shell in november.

Thanks for that posting Jeremy.

Time reveals everything. Insurance company investigators could use the pearl guide to work out how these share traders operate over time.

I'm absolutly sick and tired of these city slickers useing other peoples money to try and replicate Paspaleys.

A warning to fellow Pearl Guiders, If a someone tries to sell you shares in a pearl farm. Walk away. I have seen first hand the shonkiness involved and for those that still may be interested, I'm happy to have a yarn on the phone about it.

Pearl farming burns capital but requires genuine "PASSION" to be successful.

Pearl farming today is not the industry it was twenty years ago. The industry is at saturation level and we have people saying we will double production. These are the words of someone playing with someone else's money. Give us a break.