Arrium closes mine as iron ore price claims first scalp ARRIUM has announced the first major iron ore mine closure in Australia in response to a wave of supply brought on by Rio Tinto and BHP Billiton that has pushed down prices. The move — likely to be followed by more closures at smaller miners as more low-cost BHP and Rio iron ore comes on market — will involve 580 South Australian job losses and $1.34 billion of writedowns. The steelmaker and miner, previously known as OneSteel, yesterday said it would mothball its higher-cost operations, Southern Iron, which are making its whole iron ore unit lose money at current prices. Arrium changed its name after diversifying into iron ore and mining consumables in the 90s in response to the poor Australian manufacturing environment during the China boom. That move included the $320 million purchase of Southern Iron, including the Peculiar Knob mine, and spending on infrastructure and mine development. Arrium will axe 200 of its own workers and 380 contractors to focus on its Middleback Ranges operations near Whyalla. Export capacity will fall from 13 million tonnes a year to 9 million tonnes. Arrium’s biggest shareholder, Allan Gray, with a 13.5 per cent stake, said the move was necessary. “It shows some capital discipline that they’ve decided to walk away from part of the more expensive end of their iron ore production,” said Allan Gray fund manager Simon Mahwhinney. “The future is very uncertain for Arrium, but they seem to have a focus on cash maximisation, which for a company with $1.4bn in debt is crucial. “The company is in a very awkward position as a result of balance-sheet mismanagement in the past and being caught on the wrong side of the cycle.” Despite Allan Gray’s positive interpretation, Arrium shares fell 2c, or 9 per cent, to 20.5c yesterday. Dr Mahwhinney said Allan Gray, which has built up its position in Arrium this year after the shares slumped last year in the wake of a $754m equity raising, said the unloved Whyalla steel operation was now the most appealing part of the business. “A lot of the upside stems around the steel business for us — it’s been a very high Australian dollar for many years, but conditions do seem to be turning,” he said. “Iron ore is enormously challenged, but the mining consumables business that has a more stable earnings stream at least covers off on the debt.” Arrium said the mine closure would cut overall iron ore production costs by 20 per cent to an average of $US57 a tonne in 2015-16. The iron ore benchmark, which Arrium gets a 12 per cent discount to, is trading at about $US66 a tonne. Arrium chief Adndrew Roberts said a review of manufacturing announced in September was ongoing and likely to result in job cuts, with results announced next month. Credit Suisse analyst Michael Slifirski said the move to cut output was a good one and was expected, as was the $1.17bn writedown on Southern Iron. “The total impairment is as per our expectation and we believe reinforces the need to look at the track record of those involved in such investment decisions as a guide to future behaviour.” Dr Mawhinney said the impairments were not important because they were non cash and would leave gearing at 32 per cent, well below the 50 per cent level of debt covenants. South Australian Mineral Resources and Energy Minister Tom Koutsantonis said he had spoken with Arrium management and expressed his disappointment with the job losses but the company would honour all employee entitlements and the state government would provide assistance to workers. “The iron ore price has hit a five-year low, it’s part of a disappointing cycle when you see iron ore prices dropping and there are consequences of that — and very human consequences,’’ he said. Source >>> bit.ly/1yCGDzg
Posted on: Fri, 23 Jan 2015 22:01:19 +0000
Trending Topics
Recently Viewed Topics
© 2015