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

[Snoopy]

prospective bidders lining up for molycorp

http://www.theaustralian.com.au/busi...-1227498808672

If you can't get past paywall , google it. $1.5 to $1.8 bill suggested.Shareholder approval not needed either?.

I am sure if we were talking an NZX listed company that shareholder approval would be needed. But I am not familiar with ASX rules , so maybe shareholder approval is not needed to sell the company's only profit centre? It is good to see the option of a 'half sale' put on the table too. I really don't want Arrium to sell Molycop outright, as owning Molycop was the principal reason I have been buying into Arrium!

As for the potential suitors:
Apollo? TPG Capital? Scotland's Weir Group? Koch Industries? Who are they?

SNOOPY

[Snoopy]

I have used the hedged currency figures that in both FY2014 (USD1 = AUD0.9800) and FY2015 (USD1=AUD0.8700) were less favourable to Arrium than the actual average year currency figures.

EBIT(2015)= $A481.3m x [($US59m - ($A45.7m+$A18m)x 0.8700)]/[($US111m - ($A48.2m+$A18m)x 0.9800)] =

= $A481.3m x [($US3.581)]/[($US46.1m] = +$A7.7m

Considering I am traying to estimate the actual FY2015 EBIT divisional result of -$A97.4m, this is an unacceptable estimate. I will only get a loss EBIT figure if the price received for the iron ore is less than the cost of extraction and transportation. Even with the 'worst case' figures' I have used I am nowhere near seeing that. So I am no nearer figuring out how Arrium made an EBIT loss on iron ore in FY2015. As Charlie Brown would say: Arrrrgh!

I made a new years resolution to keep my analysis of my investments as simple as possible, but no simpler. But this Arrium thing is difficult, so it is bringing out the inner dentist in me. So sit in your chair and be prepared for some deep drilling! I have now drilled down to the quarterly mining reports for FY2015, to see if I can get those to add up!

Notes:
1/ All costs and weights are per dry metric tonne (dmt)
2/ Freight from Australia to China starts at $A15 per tonne, because this was the figure quoted for FY2014. No FY2015 figure was quoted. I have reduced this figure by $A1 per quarter in line with the announced planned savings to be in place by FY2016

	USD Price received	Q Result implied Exchange Rate	AUD Price Received	AUD Oz Total Cash Cost	AUD freight Oz - China	AUD EBIT/t {F}	Sales Volume (Mt) {G}	Sales Distribution (%)	{F} x {G}
Q1	US$73/t CFR	USD1 = AUD0.9358	$A78/t	A$68.4/t	$A15/t	-$A5.4/t	3.29	26.34%	-$17.8m
Q2	US$64/t CFR	USD1 = AUD0.8649	$A74/t	A$70.2/t	$A14/t	-$A10.2/t	3.29	26.34%	-$33.6m
Q3	US$46/t CFR	USD1 = AUD0.7931	$A58/t	A$66.9/t	$A13/t	-$A21.9/t	3.06	24.50%	-$67.0m
Q4	US$52/t CFR	USD1 = AUD0.7761	$A67/t	A$62.2/t	$A12/t	-$A7.2/t	2.85	22.82%	-$20.5m
Weighted Average			$A70/t
Total							12.49		-$138.9m

I should note that I ran the above table without the Australia to China freight cost and got a number in line with my earlier calculated estimate. By adding in the Australia to China freight charge my -$138.9m is much closer to the -$97m declared, albeit now ~$40m too high not ~$110m too low! There is uncertainty over the international freight numbers I have chosen. There is 'grand total' uncertainty of plus or minus $4m with the 'addition and subtraction' process alone. So I am reasonably convinced that I have found my error. I will sleep on it though!

SNOOPY

[Joshuatree]

A snippet from AFR

As bidders sink their teeth into the 100-odd page information memorandum for Arrium's Moly-Cop business, one figure stands out from the rest.
Arrium is telling bidders it expects the mining consumables division to generate $US190 million ($270 million) in earnings before interest, tax, depreciation and amortisation in the 2016 financial year.
That's a whopping 28 per cent higher than the $211 million earnings in the financial year just gone, on local currency terms.
It's the sort of earnings trajectory that is sure to grab bidders' attention - and perhaps scepticism - ahead of September 18, when Arrium and advisers UBS and Lazard are seeking indicative bids. [It's understood Moly-Cop management will be on the road presenting to interested parties after the first-round.]


It'll also have ramifications for bidder funding. As Street Talk revealed earlier this week, UBS is said to be getting a staple package together to lure in private equity buyers.
Private equity bidders are expected to use the staple to come up with indicative bids and as a bargaining tool with their own lenders should they proceed to the auction's second round and more detailed due diligence.

While some had expected UBS to offer up to four times earnings for an acquisition, it's understood that figure was a little conservative and a package would be offered at more like 5-times earnings-plus.
That kind of leverage would suit the international private equity firms that are running the ruler over Moly-Cop, such as Blackstone and KKR & Co.
In terms of trade buyers, United States-based Koch Industries is having a look, as revealed by Street Talk. Koch knows the local market after teaming up with Pacific Equity Parties in a tilt for another embattled mining services group, Bradken.



Other international trade buyers that are expected to look at the Moly-Cop mining consumables business include Brazilian steel giant Gerdau, Scandinavians Metso and FLSmidth and South Korean group POSCO.
​Acquisitions of comparable businesses over the last five years have been completed on an average multiple of 11.2 times EBITDA, while Arrium picked up Moly-Cop for 9.3 times in 2010.
Arrium's lenders are following the Moly-Cop process closely, as the company battles with its $1.75 billion debt pile.



Read more: http://www.afr.com/street-talk/arriu...#ixzz3kdLL7wta
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[h2so4]

Absolute Bargain..?.......No

At .10c plus or minus change I think the market has this one right.

[Joshuatree]

Selling Molycop wipes the debt.Hope not all of Molycop or any is sold.

[h2so4]

Change?....?.
From what?
This company is burning cash and not just change but million dollar bills.

[Joshuatree]

Arrium eyes U.S debt mkts amid Moly-Cop jitters

http://www.afr.com/street-talk/arrium-eyes-us-debt-markets-amid-molycop-jitters-20150914-gjlxb5

[Snoopy]

Arrium eyes U.S debt mkts amid Moly-Cop jitters

http://www.afr.com/street-talk/arrium-eyes-us-debt-markets-amid-molycop-jitters-20150914-gjlxb5

So Arrium is mulling replacing some of the local bank debt with a subordinated 'high yield' debt linked to the US market? With interest rates so low in the USA, the potential 'high yield' US debt could still be at a lesser interest rate coupon than the regular interest rates being charged in Australia. This could be a good outcome that preserves the valuing of the growing Molycop for existing shareholders. Perhaps the best outcome we shareholders could expect?

SNOOPY

[Daytr]

So they are going to the junk bond market? What do you think the coupon will be Snoop?
Buys them some time I suppose, but I don't see it solving anything.
Also if the Aussie continues to depreciate then the debt grows, so not a smart move I would suggest.
Is their debt Aussie denominated now?

So Arrium is mulling replacing some of the local bank debt with a subordinated 'high yield' debt linked to the US market? With interest rates so low in the USA, the potential 'high yield' US debt could still be at a lesser interest rate coupon than the regular interest rates being charged in Australia. This could be a good outcome that preserves the valuing of the growing Molycop for existing shareholders. Perhaps the best outcome we shareholders could expect?

SNOOPY

[Daytr]

Haha ahh yep I do, but you obviously don't.
Bonds are debt, just not bank debt.
But from what I read it looks like high yield bonds, or junk bonds as they are affectionately called.
What bank in their right mind would take on this debt?

Not bonds but debt right? you finance types should know the distinction is an important one for troubled companies.
Don't look a gift horse in the mouth as they used to say.