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

[Daytr]

PSE, so how is an outcome that you agree possible hysterical? If its possible & I would say plausible, then its certainly not hysterical.
The banks will be paid first no matter what the outcome as they should as they have security.
They will try & keep the entity alive for as long as possible to retrieve as much debt as possible like selling assets as they have.

Snoop, USD50/ton cash costs may keep them alive & may not. These are cash costs not total costs, where as the sell price is the full revenue.
The July contract for FE CFR is $57/ton the 12 month price is $49/ton.
Competitors prices do matter as they can keep producing more FE and still make money & the competitors have cash costs in the USD30 per ton.

Just because they are maintaining a plant & spending money on it doesn't mean its not archaic.
The fact is the likes of mills in China have scale that Arrium just can't compete with.

In regards a buyer, the debt is a massive hurdle. The Chinese I wouldn't think would have any interest in the steel making & the iron ore is probably too small for them to bother with. You are right there could be sales, but this might be to satisfy bank debt like they have done with part of the consumable business. Lets just say you are right & there is a white knight? Who do you think are the likely candidates to do a takeover?

I have no axe to grind here, however I think there is still immense risk with this stock & with that if they prove they can make it then is upside.
I'm just querying if they can make it.

[Daytr]

Yep that's what I said. Not what you stated I said.
And as I mentioned oil is having a seasonal demand impact holding prices up.
STO has proven it can withstand lower oil prices for a short period of time, lets see how they go with sustained lower prices than where they are now.
I also said if they can divorce gas prices from the oil connection they will do well & they have managed to do that for their domestic gas. However their exported gas will be at international market prices. Anyway different thread.

17th March

I don't get too much out of the majority of commentators on here so will sign out for a while. John Key was right, he lost the argument against Niki Hager the "left wing conspiracy theorist".
I wouldn't listen to anything that John Key has to say he is a master of BS.

[Snoopy]

Snoop, USD50/ton cash costs may keep them alive & may not. These are cash costs not total costs, where as the sell price is the full revenue.

I think it is the cash costs that matter Daytr.

However, you could look at total costs. That would give a reduced profit figure, even a loss. But much of that loss would be due to depreciation of the on book mineral reserves. So ARI could be making a loss, but still be strongly cash positive because of non cash depletion charges. It is the cash that the banks are interested in as that is what will ultimately repay their loans. An actual loss (if any) would only be reflecting past investment decisions by Arrium that have sunk money into now marginally profitable reserves. That money can't be totally recovered overall. But ARI can certainly get some of it out and create cash by continuing to mine those lower cost sites. This is what they must do. This is what they are doing.

The July contract for FE CFR is $57/ton the 12 month price is $49/ton.
Competitors prices do matter as they can keep producing more FE and still make money & the competitors have cash costs in the USD30 per ton.

It wouldn't be great for Arrium if the Iron Ore Price was $US49/ton in twelve months. But it is the $A cost of extraction that is important. Depending on where the exchange rate has moved, Arrium could still be generating cash even at a $US49 market price in twelve months time. And hopefully they can get a years cashflow out of their mines - even at current exchange rates/ iron ore prices- leading up to that time.

Just because they are maintaining a plant & spending money on it doesn't mean its not archaic.
The fact is the likes of mills in China have scale that Arrium just can't compete with.

I don't think 'scale' is the problem. The problem is China selling steel for less than the material input cost, IOW dumping. Andrew Roberts has never shied away from fair competition. From that I think you can infer that Arrium's steel works in Australia is internationally cost competitive.

In regards a buyer, the debt is a massive hurdle. The Chinese I wouldn't think would have any interest in the steel making & the iron ore is probably too small for them to bother with. You are right there could be sales, but this might be to satisfy bank debt like they have done with part of the consumable business. Lets just say you are right & there is a white knight? Who do you think are the likely candidates to do a takeover?

I could support my share of a cash issue, if the price was right: 1:1 at 10c? Rather that than see Arrium fall into the hands of the banks. I don't think those bankers will be keen to foreclose. What would bankers do with a steel mill? What sort of wind up costs would those bankers face if they closed it?

SNOOPY

[Daytr]

With total costs Snoop I wasn't referring to accounting entries but real costs that aren't included in cash costs.
Like head office costs, interest costs etc. Real costs that substantially add to that USD50/ton.
I agree re China dumping as well as the likes of Russia, but they typically a massive companies that can ride lows for some time & some obviously have government support, whereas Arrirum is exposed & isn't in the financial position to sustain lower prices in either steel or FE. So they need better prices and soon, whereas the others don't necessarily. Perhaps market forces will do them a favour, however I just can't see it when China is cutting back if anything on commodity imports & production is still growing.

[Snoopy]

With total costs Snoop I wasn't referring to accounting entries but real costs that aren't included in cash costs.
Like head office costs, interest costs etc. Real costs that substantially add to that USD50/ton.

Daytr, the Arrium debt already exists. The interest bill will only go if the loans are paid back. I would suggest to you that the interest bill is not relevent to the question as to whether Arrium continues mining or not, as long as mining is 'cash positive'. Stop mining and those interest costs still need to be payed.

Head office, well, there is probably some fat to shed there. All will be revealed with the results announcement in August.

I agree re China dumping as well as the likes of Russia, but they typically a massive companies that can ride lows for some time & some obviously have government support, whereas Arrirum is exposed & isn't in the financial position to sustain lower prices in either steel or FE. So they need better prices and soon, whereas the others don't necessarily.

A realistic assessment of the competition!

Perhaps market forces will do them a favour, however I just can't see it when China is cutting back if anything on commodity imports & production is still growing.

So if your theory pans out, China will still be buying Arrium's iron ore? So not all bad then?

SNOOPY

[Daytr]

Haha Snoop, probably not Arrium's iron ore, but high quality & cheaper produced iron ore.
Another point if they stop mining there won't be interest to pay, as it probably means they are bust.
Anyway good luck with it, it wouldn't take much to get a decent jump at some point such is the way with stocks that are in difficulty.
If that happens though I would suggest that's a good exit point.
Atlas rallied from 15c to around 30c before then falling to 12c & hasn't traded since being suspended.

[percy]

At today's closing price of 13.5cents the market cap of ARI is $396.53mil.

[Daytr]

What a load of rubbish I never said it was certain.
You talk of hysteria, I would suggest your reaction to my posts are exactly that.
Its a very high risk stock & I am putting out there what the risks are.
I believe I used the term, high risk, high reward.

From Rio's Iron Ore boss in the media today. "Rio Tinto’s iron ore boss Andrew Harding says long-term demand for the commodity is strong, but warned high-cost producers would not last long in the current market."

QUOTE=PSE;576903]That's what I said you said.
Don't buy the shareprice is going down to $4 but you were hysterical then as you are hysterical now.
I said bankruptcy was possible you said it was certain, not the same thing.
Don't know why I waste my words on you, all the best Snoopy.[/QUOTE]

[Daytr]

I really don't care what you think, but don't make things up. I never said it was a certainty re ARI going bust, simple as that.
I make big calls on many stocks, commodities and currencies and of course I'm not always going to get it right, in fact I did the same on XRO & OZL also NCM, copper among a lot of others.
But keep being fixated & making things up if it helps. LOL

[Snoopy]

Here is what Arrium said about their Steel Manufacturing Plant in their FY2010 annual report, p9.

"Following work undertaken in relation to the underlying causes of the Whyalla blast furnace interruption, we have decided to carry out some repair and redesign work to the blast furnace to address increased wear around the boosh and lower stack components of the furnace. <snip> The work is expected to extend the life of the blast furnace to beyond 2020."

That doesn't sound like an archaic plant to me!

A follow up on the state of Arrium's steel plant at Whyalla. This is a quote from p36 of the Weekend AFR from 20th-21st June 2015.

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"All assets have a finite life and need to be replenished at some point.", Arrium Chief Executive Andrew Roberts says. "A blast furnace has an average life of 25 years. The last time we did a major refit was in 2004, so in essence the asset life is through to 2024."

(Snoopy's note: 2004 + 25 = 2029, so I guess Roberts is being conservative? Or perhaps Roberts is thinking he will have to start planning for a new blast furnace in 2024?)

"That is 10 years away, and as we go forwards we will have to review it."

Mr Roberts says it is important for Australia that it has two strong steel companies (Snoopy's note: the other being Bluescope Steel), but Arrium needs to continue to cut costs in its steel division if it is to remain viable.

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I think the above puts to bed the idea that Arrium needs to spend up large on its steel business before 2024.

SNOOPY