Tough market, restructure costs hit Arrium for $236m

Iron and steel business Arrium posted a statutory net loss of almost a quarter of a billion dollars after tax in the first half of the 2015/16 financial year.

Arrium said lower iron ore prices drove an underlying loss of $24m during the six months ending December 31. But additional one-off costs drove a statutory net loss (i.e. actual loss) of $235.8m after tax.

The statutory net loss was an improvement from the $1.5bn loss reported last year due to significant asset write-downs as a result of the slumping iron ore market. But the underlying loss was roughly 8% worse than the underlying loss reported last year.

Arrium chief executive Andrew Roberts said the company was still working on an ongoing restructure, which would make it “a more competitive and resilient business”.

“Although we delivered solid earnings improvements in both our mining consumables and steel businesses in very challenging conditions, the performance of our Whyalla businesses weighed heavily on group earnings,” Roberts said.

Arrium’s mining consumables business reported a $109m EBITDA, up 15% year-on-year. Arrium noted that this was achieved despite a weakening market for the consumers of mining consumables – miners. Despite the mothballing of some mines, and slowing of production at others, Arrium reported a 1% increase in sales of its grinding media.

The company’s steel business reported an underlying EBITDA of $44m, up 238%. This was driven by cost reductions, lower raw material costs and foreign exchange shifts, which “more than offset” a decline in Asian steel prices to 12 year lows.

Arrium’s third division – mining – reported an underlying EBITDA of minus $20m, however.

Roberts said Arrium would continue to do battle with “a very difficult external environment for mining and steel companies globally”.

“In October last year we announced that work was progressing to transform both our Mining and Steel businesses and improve their earnings and cash generation in response to the weaker external environment,” he noted.

“Despite the work progressing well, further deterioration in iron ore and Asian steel prices since October has led to the need for additional restructuring and cost savings.

“We have a positive outlook for Mining Consumables and Steel demand and we expect earnings in these businesses to be stronger in the second half. We are also working rapidly to reposition Arrium as a more competitive and resilient business.”

Arrium is progressing the sale of its mining consumables division, in part to deal with its significant debt pile, a result of the slump in iron ore prices over the last 18 months.