Complaining about inaction by Canberra on its anti dumping complaints, as Arrium (ARI) CEO, Andrew Roberts yesterday did to media and analysts will only serve to drag attention back to the gorilla in the balance sheet – the $1.5 billion net loss for the six months to December 31.
That loss, as the company confirmed yesterday, was driven by huge impairments on its South Australian iron ore assets in the wake of the long slide in global iron ore prices and no sign of an improvement – even after the 17% or so fall in the value of the Aussie dollar in recent months.
Leaving out the $1.3 billion of impairment charges Arrium reported a $22 million net underlying loss.
The shares ended unchanged on 22 cents yesterday and naturally there’s no payout to shareholders. And those unlucky enough to have bought shares in the still controversial rights issue late last year at 48 cents each, are feeling their losses.
ARI, FMG, AGO, BCI 1Y – Iron ore miners still under pressure
"It is fair to say it was a very challenging half for the business. We saw iron ore prices fall 40 per cent compared to last year,” Mr Roberts admitted in quotes in Fairfax and other media.
The closing of the Southern Iron operations in South Australia, which was the major part of the impairment cost, is intended to make a big dent in Arrium’s cash costs so that the iron ore business can be cash positive by next year following the collapse in the iron ore price.
Closing this mine will slash transport costs for the business and lower the overall cost per tonne.
Operating earnings in the mining business plunged to $77 million in the six months ended December 31 from $423 million in the year-prior period – with most of that fall down to the slide in iron ore prices and profits.
"With the lower price for iron ore many companies around the world are looking at their cost base and taking actions to mitigate costs and determining whether they will mine going forward," he said.
In the face of those events, to complain about inaction on dumping, as Mr Roberts did yesterday, is to ignore the obvious question – the future prospects for the company.
Mr Roberts said inaction by Australia’s Anti-Dumping Commission was damaging the company’s steel business, but you can argue the ending of the resource boom and the collapse in world iron ore prices has done far more damage and will continue to inflict more pain on the company and shareholders for sometime to come.
He said the company needs interim import duties places on dumped steel as soon as possible rather than waiting for the outcome of a lengthy investigation.
"We are suffering material injury and we want that to be rectified through duties. We are well behind other countries like Canada…[the Anti-Dumping Commission] has been slow and disappointing," Mr Roberts said.
Arrium says round 65% of Arrium’s steel production either already has anti-dumping protections in place or is under investigation by the commission.
The real problems are the losses in iron ore and the impact on steel demand (and production and costs in a volume-driven business) from the ending of the resources boom and consequent slowing in demand for steel products.
