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

[Daytr]

They are different to Atlas, however if ARI sold its value business being consumables it may just recover enough to pay its debts & perhaps not even that & then what is left? Vale & FMG just reported record FE production.
Everyone is ramping up to get cost efficiencies and the likes of Atlas or ARI just simply wont be able to compete.
I was short Atlas, I should have held!

[Snoopy]

They are different to Atlas, however if ARI sold its value business being consumables it may just recover enough to pay its debts & perhaps not even that

Pacific Equity Partner's 'opening gambit' is that the value of Mining Consumables exceeds Arrium's debts.

& then what is left?

The main thing left is the steel distribution business within Australia, in which Arrium is the market leader under brandname 'OneSteel'. This is more a 'price taking' business. But the federal government has agreed to protect them from the below cost dumping of products out of Asia. So over the business cycle 'Onesteel' should be profitable. However, if selling the the mining consumables business doesn't cover all debts then, IMO the banks would do better to let Arrium keep that. Then the profits from 'Mining Consumables' could be used to steadily pay down debt.

Vale & FMG just reported record FE production.
Everyone is ramping up to get cost efficiencies and the likes of Atlas or ARI just simply wont be able to compete.

It looks bleak now. But markets like this are not always driven by today's Fe spot price. Arrium have at least 75% of their Fe business on longer term contracts.

I was short Atlas, I should have held!

Huh? I would have thought being short on Atlas was the right strategy!

SNOOPY

[Joshuatree]

http://www.mydigitalfc.com/economy/i...ase-metals-297

Be great if this happened un Aus.

[Snoopy]

http://www.mydigitalfc.com/economy/i...ase-metals-297

Be great if this happened un Aus.

Seems to be a two edged sword for the likes of Arrium. 1st quote from the article:

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Chinese exports of steel products stood at 9.73 million tonne in July, near the record 10.29 million tonne hit in January. Shipments reached 62.13 million tonne in January-July, accounting for two-thirds of the record 93.78 million tonne exports in 2014. Increased exports could provide a lifeline to Chinese steel mills and delay Beijing’s efforts to restructure the sector and cut excess capacity of about 300 million tonne.

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2nd quote from article

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On the other hand, lower Chinese demand will further trouble exporters of commodities like iron ore, cotton and soyameal.

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I see the latest iron ore spot price is USD51.22, up by 9c on the day. Is it my imagination? Or is the price of iron ore standing up quite well compared with other commodities of late?

SNOOPY

[Joshuatree]

https://www.youtube.com/watch?featur...&v=YeXBME2YVQo

Massive fire and explosion at Tianjin port is one idea but I'm sceptical.

[Joshuatree]

From bjhice on another forum

Blackstone eyes Arrium crown jewel
Bridget Carter & Gretchen Friemann - The Australian
13 Aug, 1:44 AM

New York-based buyout company Blackstone is believed to be in vigorous pursuit of Arrium’s Moly-Cop consumables business, according to sources.
At present, Arrium is receiving advice from UBS and Lazard about its options surrounding its various divisions.
A number of big-name private equity suitors are lining up for Moly-Cop, the jewel in the crown, purchased in 2010 for $US930 million ($1.28 billion).
The suitors include The Carlyle Group and Kohlberg Kravis Roberts. Blackstone is now also thought to be working on a potential deal to buy the keenly sought global grinding media products operation.
Interestingly, James Carnegie, who heads up the firm’s Sydney office, reportedly told a raft of prominent Australian-based executives of buyout firms at a private dinner in recent weeks that the private equity heavyweight intended to acquire Moly-Cop.
Mr Carnegie declined to comment on the reports.
Pacific Equity Partners is not thought to be planning to buy Moly-Cop because it is too international for the Australasian business, despite earlier speculation it was looking.
It comes as Arrium prepares to present full-year results on Wednesday, with speculation mounting job cuts are on the cards at its South Australian steel manufacturing operations.
Despite the hype from prospective buyers, those close to Arrium say a sale of Moly-Cop is only one option being explored, with a potential divestment of another division, such as steel, also being considered.
There are as many as 25 financiers for Arrium, and some market analysts question whether a sale of Moly-Cop would reap enough to cover all the company’s debts and whether the remaining operations would generate enough earnings to repay them.
But suggestions tensions have surfaced over the company’s plans to divest its most valuable asset have been refuted by those close to the company.
Loan covenants for Arrium were extended not long ago by the syndicated lenders and note holders, who control the company’s $1.8bn debt pile.
Yet some of the top four Australian banks in the syndicate are now closely watching the situation. Current terms stipulate the company is unable to hold net debt that accounts for more than 50 per cent of its equity.
But sources say the more telling metric is the company’s earnings before interest, tax, depreciation and amortisation to its interest cover ratio, which can be no more than 3.5 times.
While the company was not said to be in breach of those agreements around June 30, concerns are mounting the situation will change as it hands down its results on August 19.
Arrium’s lenders are believed to have entered talks with management over a move to alter arrangements surrounding debt covenants, according to sources.
Arrium’s non-secured bilateral loans are not said to be due for some years

[Joshuatree]

https://www.youtube.com/watch?featur...&v=YeXBME2YVQo

Massive fire and explosion at Tianjin port is one idea but I'm sceptical.

Some better details in this snippet from craigs re pricing etc
Great to see ARI finish at 13c for the week;its been a struggle.


Australian iron ore miners are suffering multiple impacts from the giant explosion at the Chinese port ofTianjin with iron ore futures rising and BHP confirming shipments to China had been affected. Tianjin isone of several major import destinations for commodities into China, and most Australian miners land theirproducts there. The explosion occurred about 20 kilometres from the iron ore discharge point at Tianjin, butcustoms and vessel discharge operations at the port have been


significantly disrupted and are slowing the movement of commodities into China. A BHP spokeswoman said negotiations withcustomers were under way in a bid to offset the effects of the blast. "We can confirm there was no damage to the iron oredischarging berths following the explosion at Tianjin port today," she said. "However, shipments and port operations have beendisrupted as a result and we are working with our customers to minimise any potential impact. "We will continue to monitor thesituation closely and provide further updates as appropriate." Dalian]iron ore futures for delivery in September and January wereboth higher as investors digested another devaluing of the Chinese yuan and speculated that the existing oversupply of iron orein China could be reversed if shipments were impacted for an extended period. Iron ore for September delivery rose 4 per cent onThursday, and has now risen 25 per cent in the space of five weeks. Futures for coking coal also rose, with the price for cokingcoal delivered in January rising by more than 5 per cent over the past three days, and 2.7 per cent on Thursday alone. [/COLOR

[Snoopy]

https://www.youtube.com/watch?featur...&v=YeXBME2YVQo

Massive fire and explosion at Tianjin port is one idea but I'm sceptical.

Arrium's main iron ore customer in China is "Tangshan Guofeng Iron and Steel.". Looking at Googlemaps, Tangshan Iron and Steel is close to Tianjin Port (90km away). But it is not clear to me that the port that blew up is actually where Arrium's iron ore lands.

SNOOPY

[Snoopy]

The main thing left is the steel distribution business within Australia, in which Arrium is the market leader under brandname 'OneSteel'. This is more a 'price taking' business. But the federal government has agreed to protect them from the below cost dumping of products out of Asia. So over the business cycle 'Onesteel' should be profitable.

Article in the AFR on Bluescope Steel dated 13-08-2015 p36 referenced Arrium.

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<snip>
It costs about $480 a tonne to produce the hot rolled coil (HRC) that Bluescope makes in Port Kembla.
<snip>

The price of Chinese HRC has fallen nearly 30% this year, reaching lows in recent weeks as the Middle Kingdom's domestic steel demand continues to undershoot production schedules. As a result through July, Chinese Steel exports rose by up to 25% with expectations that up to 100Mt of product will leak into regional, North American and European markets.

That potential has been made almost certain by the devaluation that will leave Bluescope even more firmly poised on dilemma's horn.

<snip>

Given the struggle that Bluescope and fellow domestic producer Arrium have had in securing anti-dumping protections this would likely bring O'Malley (Bluescope CEO) no succour. Bluescope argues that even the beefed up regime of recent years is too slow and too easily beaten.

The most recent 'boron scam' is a classic example. Apparently some foreign steelmakers have danced around our anti-dumping tariffs by subtly changing the specification of their steel through the addition of a bag of boron (chemically neutral in this application) to their raw materials mix. It is reported this window of opportunity is being closed slowly.

<snip>

Looking at through the prisim of right now, Chinese hot rolled coil is selling at around $300m a tonne. (if Port Kembla's game changing cost reduction of $50m to $100m a tonne, the Australian production cost will still be at least $80/tonne above this).

<snip>

For all that Arrium was one of the few listed companies with an obvious exposure to competitive risk from the yuan's devaluation that was not spanked by investors on Wednesday. Then again when past slip-ups and continuing structural flaws have seen your share price slide six-fold over a year to a spare 12.5c a pop, there is not a whole lot of downside left.

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What the article didn't mention was that as an iron ore producer, Arrium will see benefits from the spike in the iron or price back over $US50 in the last few weeks.

SNOOPY

[Joshuatree]

ARI is bringing costs down
Forecast break-even cash price 2016 US$47/dmt
Mining consumables strong performance and outlook
Steel sig improved earnings 2H15
Underlying NLAT $7 mill
Statutory NLAT$1,918 mill w impairments and restructur costs
Nebt debt 30th june$1750 million still complying with bank covenants
Gearing 40.7%
Export sales iron ore 12.5 mt
Av loaded cash cost A$45.7/wmtJune 15 av down to A$38/wmt
FY16 targeted cash cost A$35/wmt est 9-10 mt 2016

Steel EBIT positive 2H first since GFC
Ebitda $62 mill up 22% pcp
Domestic sales vol up 4%
Total delivered cost down to record low

Sales rev $6086 mill down 13%
Underlying EBITDA$351 mill down 59%
NTA 30c share was $1.30
FCF --$536 mill
Op and Invest cashflow-$332 mill
Total cap exp 2015 $424 mill
FY16 est capex $230-$260 mill
Cost reduction 2015 $60 mill

Funding
next sig maturityFY18
Total fac $2.7 bill end FY15
Av int rates 4%
Targeted FY!6 cash cost down 25% to A$53/t (US$38/t

s/p currently up from 12.5c to 12.7c