ARI (Arrium) : At Rock bottom, ore not?

[h2so4]

I hope you've been getting a few trades away SD. Lol!

[Joshuatree]

This posted by asteroider on another forum

http://www.steelguru.com/internatio...remains_elusive_Still_USD_20_away/357042.html

[Snoopy]

Given the level of shareholder rejection of the last shareholder rights issue, except by the directors who dutifully took up their entitlements at 48c, I am picking that the next share issue (if required) will have to be a share placement with a friendly corporate. That means we existing shareholders will suffer dilution. But I don't think another cash issue is a given. The company is still profitible, and they are well within their banking covenants, even if large asset writedowns diminish the balance sheet.

Arrium has taken the write down (mainly) with Southern Iron.

"As a result of the shutdown Arrium will take a one-off $1.335 billion hit to its half year result, including a $1.17 billion impairment charge related to Southern Iron and $130 million charge linked to its Steel and Recycling business."

Now Arrium is busy raising capital., without going back to shareholders. This is the February 6th announcement (misdated 6th January!):

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SALE OF WIRE ROPES BUSINESS

Arrium Limited (ASX:ARI) today announced that it has entered into an agreement for the sale of its Wire Ropes business to Bekaert, a Belgium based company for A$90 million.

The Wire Ropes business, based in Newcastle, NSW, is a leading manufacturer of high performance ropes in Australia with a history spanning more than 90 years. Arrium’s Managing Director and CEO, Mr Andrew Roberts said: “Wire Ropes is a quality business, however it lies outside our strategic focus for future growth in Mining Consumables.

“Our growth in Mining Consumables is centred on the global mineral processing industry, including capturing at least our share of the expected strong growth in grinding media demand. Our Moly-Cop grinding media business is well positioned to achieve this with leading market positions in key growth regions of the world including North America, South America and Australasia”.

The Wire Ropes business has strong leverage to the mineral extraction industry, particularly through its market leading drag line and shovel ropes. This acquisition builds on Bekaert’s existing global position in wire ropes.

“Today’s announced sale is consistent with our focus on reducing debt, and builds on our good progress with asset divestments. Arrium’s asset divestment proceeds for FY15 will increase to at least ~A$150 million following completion of this sale,” Mr Roberts said.

Arrium’s Wire Ropes business employs ~100 people and Bekaert will offer all employees ongoing employment. The sale is expected to complete by end of the March 2015 quarter.

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SNOOPY

[Snoopy]

This posted by asteroider on another forum

http://www.steelguru.com/internatio...remains_elusive_Still_USD_20_away/357042.html

The above article quotes Mr Andy Xie, a Shanghai based independent economist.

"Prices need to decline to a level that’s so painful higher cost Chinese mines will be forced to give up. Iron ore will slump into the USD 30s a tonne this year as low cost supplies rise and steel demand in China shrinks. It can still go down through USD 40 before we bounce back. It will probably average USD 50 this year."

That is one mans view, very pessimistic. But I think Arrium can survive for one year at just a USD50 average if that did come to pass. Other commentators are not as pessimistic at this.

SNOOPY

[Joshuatree]

Australian coal miners tipped to gain market share

Read more: http://www.smh.com.au/business/minin...#ixzz3RKhA9Jbm

[Snoopy]

Australian coal miners tipped to gain market share

Read more: http://www.smh.com.au/business/minin...#ixzz3RKhA9Jbm

I don't follow the relevance of this to Arrium. Arrium doesn't mine coal. The only comment I can see which is - at a stretch- relevant is:'

"The scalability of Australian mines <snip> has enabled the displacement of major competitors in US, Canada and Indonesia. This trend is likely to continue thanks to a continued strong operating performance plus currency depreciation. On the other hand, US suppliers, many of which exhibit high costs, will not see the cost relief that currency devaluation brings to Australia."

Meanwhile Arrium having quite a good day. Now up to 23c (+4.5% on the day) as I write this. The official release date of the half year result is still five days away. However, the broad content has been well signalled. So I am not expectinng too much share price reaction.

SNOOPY

[Joshuatree]

Sorry Snoop; got my wires crossed. Out of int have you checked out other Iron Ore co's, like MGX. I know theres many differences and its hardly comparing apples with apples , more like apple with a pear maybe.

[Snoopy]

Out of int have you checked out other Iron Ore co's, like MGX. I know theres many differences and its hardly comparing apples with apples , more like apple with a pear maybe.

The most important comparative figure is the iron or production cost going forwards. Here is what CEO Andrew Roberts said about that in the press release of 23rd January 2015.

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"The re-design announced today will provide a step change in the Mining business’ cash costs and capital requirements. Cash costs loaded onto ship (2) are targeted to average A$37/wmt in FY16 down 23% or ~A$11/wmt from FY14. Total cash costs (CFR China) (3) are targeted to reduce by 20%, from A$71/dmt (4) in FY14 to an average of A$57/dmt in FY16. The business has also targeted ~A$200 million (5) or a ~30% reduction in its FY16 to FY19 capital expenditure plan. This will position the business to deliver positive operating cash flows in a low price environment."

(2) Includes mining, crushing, beneficiation, road haulage and trans-shipping costs. Excludes capitalised costs (infrastructure, pre-stripping & mining licences) & depreciation, amortisation charges in respect of those costs, royalties, sales & marketing and corporate costs. Also includes $2/t related to addition of ~600kt of magnetite concentrate.
(3) Includes loaded cash cost, royalties, sales and marketing and corporate costs, adjustment for moisture content and freight based on current market levels. Excludes capitalised costs (infrastructure, pre-stripping and mining licenses) and depreciation and amortisation charges in respect of those costs.
(4) FY14 reported total cash cost (CFR China) included $2/t related to magnetite overheads.
(5) Includes PPE, mine development (including capitalized stripping) and exploration.

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My memory is that these costs are below all the other 'small' providers in Oz (as quoted in one of those rather dire sounding AFR articles on iron ore in Australia), albeit rather more than BHP and Rio incur to dig and deliver their own iron ore resources.

To be frank, I don't regard Arrium as an iron ore investment any more. As long as they cover their costs I am much more interested in how the recovery of the steel division goes (exit strategy 1?), and what kind of jewel their expanding mining consumables business really is (exit strategy 2?). If iron ore recovers for Arrium, that is a bonus (exit strategy 3?). I like to own shares in a company where there are several potential ways out of their pickle. Hinging everything on a recovery in iron ore has very little appeal to me as an investment strategy.

SNOOPY

[percy]

Best not to get into a pickler in the first place!!! lol.

[Snoopy]

Best not to get into a pickler in the first place!!! lol.

I only bought into Arrium in a serious way because of the hammering the market gave Arrium as a result of their situation. I judge the market has overhammered Arrium. I don't have to wait for Arrium to regain their previous heights (not that I think they ever will) to benefit from the situation. Far from something to be avoided, it was the 'pickle' that created the investment opportunity.

SNOOPY