Arrium Mining flags asset sales, announces $320m in write-downs to cope with falling iron ore prices
15 June 2015
Mining company Arrium has flagged potential asset sales and $320 million in write-downs due to the significant fall of iron ore prices.
In January, Arrium announced plans to close its southern iron ore project near Coober Pedy in South Australia's far north, cutting 580 jobs.
The company expects to record a further asset impairment charge of $320 million in its financial statements for the year ending June 30, 2015.
This includes an impairment of $245 million in mining, $45 million related to lower forecast ferrous margins in recycling and $30 million related to Metalcentre, which is part of steel's retail business.
Arrium managing director and chief executive Andrew Roberts said debt reduction continued to be a key priority for the company, but the substantial deterioration in iron ore prices has had an adverse impact on its cash flows and level of debt.
Mr Roberts said the company had made significant progress across its operations to reduce costs, particularly in its mining division.
He said the company would now undertake a strategic review of its business to reflect the low iron ore price, following a detailed assessment of its balance sheet and portfolio.
This will include "the potential divestment of significant assets of businesses".
But Mr Roberts said the company's Whyalla-based steel business, OneSteel, was seeing significant improvement.
"Our mining consumables business is continuing to perform strongly, and we are seeing significant improvement in the performance of steel," Mr Roberts said.
"However, despite the benefits from restructuring mining, and stronger earnings in our mining consumables and steel businesses, the extent of the deterioration in iron ore prices means we have had to adjust our expectations around the timing and rate of debt reduction.
"The review will consider a range of options to deliver the best outcome for shareholders, a resilient business with a stronger and more robust balance sheet going forward."
Further results will be released with the company's full-year results announcement scheduled for August 19.
Announcement a 'wake-up call' for SA
Opposition Leader Steven Marshall said Arrium's latest announcement is another wake up call for South Australia.
Mr Marshall said the South Australian Government should have been doing more to diversify the economy.
"They haven't done that work under 13 years of Labor and now we find ourselves in the situation where we have the highest unemployment rate in the nation," he said.
"If we go back three years ago, South Australia had an unemployment rate of 5.3 per cent. It's now 7.6 per cent."
Premier Jay Weatherill said he had encouraged Arrium to relocate its head office to Adelaide.
He said he had received a number of briefings from the company and was confident it was doing the right thing.
"I think it's good news that they're taking a thorough ongoing review," Mr Weatherill said.
"They understand the imperatives of reducing their operating costs in the context of low iron ore prices.
"I mean, what you'd be worried about is if they weren't undertaking reviews of this sort."
Manufacturing Minister Kyam Maher said he had been reassured that Arrium's Whyalla operation was performing well.
"The steelworks are cashflow positive and they make a profit from running the steelworks," he said.
"I'd be looking forward to the mining operations and the steelworks continuing to be an important part of the South Australian economy."