Fingers are pointing at Macquarie Bank this morning after Northern Territory iron ore miner Western Desert went into administration on Friday.

Western Desert was backed by Macquarie, its major lender with an $80 million facility, and had only just opened its Roper Bar mine, south of Darwin, in December and was ramping up production after some difficult teething problems — not unusual for a new mine.

Western Desert told the stock exchange it had appointed Korda Mentha after refinancing negotiations with Macquarie suddenly broke down last Tuesday.

Macquarie needs to explain its dramatic change of heart, given that only eight months earlier when their equities analysts initiated coverage Macquarie reckoned Western Desert could produce iron ore at a cost as low as $60 a tonne and slapped an “outperform” recommendation and a price target of $1.05 on the stock.

In hindsight those assumptions appear bullish … if they’d proved accurate, Western Desert should still be profitable now, despite the near-40% slump in iron ore prices from roughly $135 a tonne when mining commenced.

Even more interesting, Macquarie analysts noted that Western Desert’s major loan facility with the bank hedged two-thirds of its first-year production at $120 a tonne, largely protecting against precipitous falls in the iron ore price, as well as currency fluctuation.

Looking at the sensitivity of Western Desert to various commodity price and currency forecasts, Macquarie wrote that the prevailing share price of 71c “is factoring in a long-term iron-ore price of $US80-90 a tonne and an A$/US$ exchange rate of 0.80-0.90”.

That’s pretty close to where iron ore is trading now, and while the Aussie dollar is a few cents stronger than expected, Western Desert shares had since fallen heavily so you would have to assume the market had priced all that in.

At the end of July — only six weeks ago — when the iron ore price slump was already front-page news, Macquarie’s analysts had an “outperform” recommendation on Western Desert, noting the miner had hit its July shipping targets and predicting its shares would bounce back from 21c to 35c in the next year.

Western Desert’s statement on Friday said based on the current iron ore price of $84.30 a tonne its hedge book was “in the money” (ie. above water, as against underwater) by $25 million. But when it pulled the pin last Tuesday, Macquarie also refused to give Western Desert access to hedge proceeds of some $7 million against its previous two months.

For a company with an operating cash outflow of roughly $12 million a month — trying to ride out an adverse iron ore market — that cash would have been critical. Why would Macquarie, as secured creditor, prefer to tip the company into administration and appoint Ferrier Hodgson as receivers, rather than help it trade out of trouble?

It can’t be glossed over that a lot has gone wrong for Western Desert: not just the iron ore price, but also the weather, and trouble with the cumbersome barging of ore from the port of Bing Bong to larger bulk carriers moored offshore, which led to a change in contractor and a tug upgrade.

Western Desert has a string of high-profile casualties. The company was chaired by former Coles chairman Rick Allert and had former Billabong director Scott Perrin on the board. Perrin had joined with ALH Group co-owner Bruce Mathieson, who holds 22% of the company and recently chipped in $21 million in new share capital and loan funds. Fairfax Media chairman Roger Corbett also invested.

None are shrinking violets. Smells like a stoush.