The future of Arrium, Australia’s second largest steel producer has become a lot clearer with a Korean consortium beating a UK offer to enter into the final negotiations buy the company.
Arrium went into administration in April 2016 under the weight of more than $4 billion in debts, falling iron ore prices (the company was mining and exporting iron ore) weak demand for its specialist steel and other products and low prices.
The members of the winning consortium are Newlake Alliance Management and JB Asset Management (which includes Pohang Iron and Steel, one of the world’s top four steel groups). The underbidder was Liberty House group of the UK. Financial details of the transaction are unclear, as is the level of state and federal government financial support for Arrium.
Administrator Mark Mentha from KordaMentha said in a statement late on Thursday that he would work closely with the consortium to “finalise the sale contract as soon as possible”. This will include talks with the Federal and South Australian Governments “on investments in the future of Arrium’s operations in Whyalla".
South Australian Treasurer Tom Koutsantonis said on Thursday that the South Australian Government would now begin “detailed negotiations” with KordaMentha, the Federal Government and the unions in a push reach a final sale of the business.
Unions have been calling for assistance from both governments to ensure the sale proceeds smoothly.
Arrium’s committee of creditors has been told that the total investment at the Whyalla from the South Korean group could reach $1 billion.
It is made up of the capital investment on the installation of the Finex steelmaking process (which involves using lower quality coking coal), plus a 200 megawatt gas-fired power plant at the steel pant which will also feed excess electricity into the South Australian electricity grid.
Mr Koutsantonis said the investment proposal put forward by the consortium aimed to make Whyalla the first location outside of South Korea (where it is used by Posco) to use the Finex process for steelmaking.
Arrium produces long steel products at its steelworks in Whyalla (used in building and construction) as well as operating electric arc furnaces in Melbourne and Sydney, which melt scrap steel to produce steel products. This part of the group is believed to have traded profitably throughout the group’s financial woes.
According to Mr Mentha concluding the sale depends on winning the approval of the committee of creditors of the failed company along with the Foreign Investment Review Board. “After a 14-month administration and a nine-month sale process, we are now an important step closer to providing certainty to employees, creditors, suppliers, customers and the Whyalla community, he said in a statement.
Earlier this year, Arrium sold off its Molycorp mine milling products unit for $1.6 billion, as part of its reorganisation and to reduce debt.
