Steelmaker and iron ore exporter, Arrium (ARI) (the old OneSteel), got publicity yesterday for revealing another round of job cuts in its presentation to the big Macquarie Group Australia investment conference.
But of more interest was the way that the company is matching BHP Billiton (BHP), Rio Tinto (RIO) and Fortescue (FMG) in riding the iron ore boom.
In short the company is forecasting higher than expected shipments of iron ore for the six months to June, for 2013-13 as a whole, and forecasting a small rise in 2014-14.
And that is important because the company’s export iron ore business is now Arrium’s most important area of sales and profit growth.
Arrium said its "mining sales" (iron ore) for the March quarter jumped 54% to 3.03 million tonnes, despite some adverse weather.
The company said in its presentation that as a result, sales for the nine months were up 70% to 9.2 million tonnes. That will more than offset the fall in world prices.
Arrium said annual sales are now expected to hit between 12.3 and 12.6 million tonnes, ahead of Arrium’s original target of 12 million tonnes.
That would be worth between $50 and $60 million in extra revenue for the company in the year to June.
Arrium said shipments in 2014-15 are expected to be at an annual rate of 13 million tonnes a year.
The company’s "average loaded cash cost" for the March quarter was $47 a wet tonne of ore and the average free on board price was $US95 a tonne, or $A106 a tonne.
The average price when shipping ore on a CFR basis (cartage and freight) was $US110 a tonne for the quarter, or $A123 a tonne.
ARI 1Y – Arrium quietly upgrades iron ore
Arrium revealed in yesterday’s briefing that it will cut 120 jobs as part of a restructure at its Waratah division in Newcastle – around 20% of the workforce will go.
That will cost $15 million in retrenchment costs this financial year, but will save an estimated $14 million a year.
Arrium said it would reduce its workforce at Waratah by next month.
Arrium’s Waratah steelmaking business supplies fencing products to farmers and makes train wheels and the company said yesterday that demand for wheels had fallen sharply.
And the company said its mining consumables business was expected to suffer a $15-$17 million fall in underlying earnings in the current half from weaker than expected sales in Indonesia where mining production has fallen due to the government ban on exports of ores and concentrates of minerals such as bauxite, copper and nickel.
The company is forecasting flat steel sales this half because of delays to some infrastructure projects, but sees higher sales in 2014-15.
Arrium shares rose 4% to $11.6, which is a long way from the $1.80 hit at New Year when there was optimism about China and the world iron ore price was well above $US120 a tonne.
In February Arrium reported a 220% lift in iron ore division earnings before interest, tax, depreciation and amortisation (EBITDA) to $423 million for the December half year.
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.
That helped boost net profit for the six months to December 2013 to $220.4 million, a reversal of the $448 million loss recorded a year earlier, on revenue which rose 7% to $3.64 billion.
As a result, it decided to pay a 6c a share interim dividend, up from 2c a share paid out a year earlier.
