More gloomy news yesterday from troubled steel and iron ore mining group Arrium (ARI) yesterday as it took a whack from another round of write downs.
The company said it is now looking at the sale of its mining consumables business as it slumped to a $1.9 billion loss because of $1.8 billion in impairment and restructuring losses, most of which were linked to the restructuring of its South Australian iron ore mining and export business.
The slump in iron ore prices has seen prices slide 40% on a year ago (but they were down more than 50% a few months ago, in the final quarter of 2014-15), forced the revamp of Arrium’s South Australian mining operations while a global steel glut (thanks especially to surging exports from China) continues to hurt the company’s Whyalla-based steel making business.
Shareholders will not get a dividend from the company as a result.
"The year has been a very challenging one. We recorded stronger performances in both mining consumables and steel as expects, however earnings for the company on both an underlying and statutory basis were significantly affected by the deterioration in iron ore prices,” chief executive Andrew Roberts said in yesterday’s statement.
The group remains saddled with debt of $1.75 billion compared with the market value of its equity of $367 million before trading began on Wednesday. The shares fell 4% to 12 cents.
ARI 1Y – Arrium under more pressure
Arrium said it continues to work on options to restructure and reduce its debt. It said significant interest has been expressed in its mining consumables business after potential asset sales were flagged earlier in the year.
“It has been decided to commence a process to understand the nature and level of this interest in order to make an assessment of whether a transaction would be in the interests of shareholders," the company said.
"No decisions in respect of options have been made by the company at this time. An update on the progress of the Strategic Review will be provided later in the calendar year or earlier, as appropriate,” directors said.
The mining consumables business, which supplies steel balls to miners to grind and crush ore, is the business keeping Arrium above water in the face of depressed steel and iron ore prices.
Arrium acquired the Moly Corp mining consumables business for $1 billion in 2010.
Excluding the impairment charges, Arrium said its underlying net loss was $.67 million for the year ended June 30, sharply lower than the $296 million earned in 2013-14.
Revenue fell 13% to $6.08 billion, a fall of $1 billion thanks to the plunge in iron ore prices (and lower sales) and the slide in steel prices and sales.
Looking to the rest of the year, directors were cautious, saying:
"Earnings in the first half are expected to benefit from improvements to key drivers including increased sales volumes, lower scrap costs and further reductions to the business cost base."
"However, the lagged impact of a decrease in Asian steel prices and margins in the fourth quarter of FY15 will impact first half FY16 earnings, particularly in the first quarter."
"Arrium Group underlying earnings for FY16 are expected to benefit from volume growth in Mining Consumables, restructuring of the Mining business, volume growth and low raw material pricing in Steel, as well as from further significant cost reductions across the Group."
"We are targeting additional annualised Group cost reductions of at least $60 million in FY16. External factors such as iron ore pricing, South East Asian Steel prices and margins and movements in FX are expected to continue to be key influencers of earnings,” directors said.
