The iron ore industry isn’t just BHP, Rio Tinto (RIO) and Fortescue (FMG) plus a group of WA-based tiddlers – Arrium (ARI), the South Australian based steelmaker with an iron ore business sideline, is often left out of industry comparisons. Unfairly, given the latest half year surge in sales and earnings that helped Arrium to a sharp turnaround in profit in the six months to December.
Thanks to the surge in iron ore earnings, and a solid outcome for its mining consumables business, which offset another static result in its basic steelmaking operation, Arrium has revealed a tripling in the size of its interim payout to shareholders.
Arrium benefited from a 220% lift in iron ore division earnings before interest, tax, depreciation and amortisation (EBITDA) to $423 million for the half.
For the balance of the year, it said it expects ongoing strength in its iron ore and mine consumables units, but with steel to remain under pressure, albeit with some pick-up in the NSW and WA economies.
As a result, it decided to pay a 6c a share interim dividend, up from 2c a share paid out a year earlier.
ARI 1Y – Arrium triples dividend thanks to iron ore surge
Arrium said that net profit for the six months to December 2013 was $220.4 million, a reversal of the $448 million loss recorded a year earlier, on revenue which rose 7% to $3.64 billion.
Earnings per share rose to 16.2c, a recovery from the loss of 33.2c a share a year earlier.
Underlying EBITDA surged by 97% to a half yearly record of $503 million.
The steel division continued to drag on the overall performance, with a $30 million EBITDA profit, which was unchanged from the second half of the prior financial year. But the mining consumables business reported earnings of $100 million.
The key to the result was the performance in the iron ore business.
Export hematite iron ore sales for the half were up 79% to 6.1 million tonnes, in line with the company’s target rate of more than 12 million tonnes a year. Iron ore prices in the six months to December were also higher than expected.
The combination of higher sales and prices saw iron ore revenue rise 35% to $877 million, from $373 million. That’s a gross profit margin of just under 50%.
