Arrium (ARI) chair Peter Smedley used his final AGM yesterday to reinforce a now familiar message to shareholders – that the controversial $754 million capital raising in September, has made the company better off and able to withstand the downturn in iron ore prices.
Just 2% of the company’s retail shareholders took up the issue at 48c a share in September and October.
Yesterday they must have been ruing their bravery with the shares closing at 28.5c (up 1.7%) as the company has been battered by the slide in world iron ore prices.
Iron ore closed at just over $US75 a tonne on the weekend (before the AGM) – down from around $US130 a tonne at the time of the 2013 AGM, and more than $US80 a tonne when the issue was made in October.
The issue was undersubscribed by 20% which, with the falling iron ore price, saw the shares plunge to a series of all-time lows over the past month or so.
They had been trading at 56.6c before the issue and fell to 40c after the issue’s results were announced, then lurched downwards as iron ore prices fell (an investors ignored the possible benefits of the fall in the value of the Australian dollar at the same time).
“Arrium is now significantly better positioned with a stronger balance sheet and more appropriate capital structure for the current challenging environment,” Mr Smedley said at the company’s annual general meeting.
ARI 1Y – Departing chair defends Arrium raising
Mr Smedley has been chair of the company since 2000, when it was called OneSteel after being spun out of a slimming BHP (it was part of BHP Steel and BlueScope was the other major steel business sold). Yesterday was Mr Smedley’s last meeting as the company’s chair.
He told shareholders the sharp fall in iron ore prices had forced the company’s hand, given its expansion deeper into the iron ore export industry in the last five years.
It was a line he made in a letter to shareholders at the start of the month, when he said in part:
"The capital raising has enabled Arrium to significantly reduce its level of debt and strengthen its balance sheet, and the company now has a more appropriate capital structure for the current challenging environment.
"In the period following announcement of our raising, share prices of other mid-tier Australian iron ore producers moved lower and iron ore prices and market sentiment continued to be under downward pressure.
"The deterioration in iron ore prices, related sentiment and our share price since the announcement of our capital raising has reinforced that the timing of the raising, the amount of the raising, as well as our decision to have it fully underwritten were both prudent and appropriate.” Mr Smedley said in the letter dated November 4.
His comments to the AGM yesterday were not much different.
Arrium chief executive Andrew Roberts told the meeting the company expects a fall in profit in 2014-15 due to weaknesses in iron ore prices and steel.
“We do expect total earnings for FY15 to be lower than FY14, largely due to the substantial impact of lower iron ore prices.
“However earnings are also expected to be weighted to the second half due to expected stronger second half earnings in steel and mining consumables … as well as the benefits from our cost reduction program,” he said.
The company will export around 13 million tonnes of iron ore this financial year and although many shareholders are grumbling, the move to exploit its iron ore reserves, instead of keeping them for its low margin steel making business, has allowed Arrium to pay dividends, and to keep investing in an aggressive restructuring program in the steel division to improve efficiencies.
