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

[Snoopy]

Too true. I wonder how the banks plan on getting their $2.3 billion back. Guess they'll keep hitting the equity market until they get enough cash back, and hope the asset sales covers the rest.

Potential write downs at ARI won't affect the bank loans at all. The shareholders equity may suffer, but the bank loan balance remains intact.

ARI do have a (voluntary?) surplus asset sale program underway.

SNOOPY

[Snoopy]

Potential write downs at ARI won't affect the bank loans at all. The shareholders equity may suffer, but the bank loan balance remains intact.

ARI do have a (voluntary?) surplus asset sale program underway.

Quoting from an article published in "The Australian" today:

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The dramatic drop in the price of iron ore, which has fallen to five-year lows around $US80 a tonne, forced Arrium to announce the raising last month to reduce its debt.

Chief executive Andrew Roberts said at the time that the plunge in the iron ore price had *affected market sentiment and he warned of a difficult environment in the mining industry.

He said the company was still making a thin margin on its iron ore operations but the integrated steelmaker would need to pull more costs out of the business over the coming year.

Arrium raised about $367m from the institutional portion of the one-for-one rights issue at 48c, and $98m through an institutional placement. Institutional shareholders took up about 79 per cent of their entitlements, with the shortfall and the placement priced at 48c via a bookbuild, equal to the underwritten floor price.

The retail bookbuild would not clear at the 48c floor price given the share price had fallen well below that, one source said.

The raising is underwritten by UBS, which means Arrium will get the capital no matter how the process ends up. UBS had the issue fully sub-underwritten, so the sub-underwriters would carry the risk of any shortfall or price gap, the source said.

However, there is market talk that disputes this, meaning UBS will by hit with some of the shortfall.

Those who were hoping a recovery in Arrium’s share price would ease the pressure on the raising will be disappointed by a statement from ratings agency Standard & Poor’s, which has lowered its benchmark iron ore price outlook by 11 per cent to $US85 a tonne to 2016.

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Currently $A1 = $US0.8790

Arrium's total delivered cash cost as at EOFY2014 was $A73/tonne or $US64/tonne.

It looks like three is still a cash margin there for Arrium! Meanwhile the share price looks to have bottomed with a slow recovery ( + 0.7c to 35.2c ) as I write this.

SNOOPY

[Snoopy]

A Wednesday update from 'short man'. ARI shorting has now reduced from 1.89% to 1.32%. That is nowhere near the top 100. Looks like the 'big ARI short' is over. Arrium is up on the market today, admittedly by a measly 0.6% or 0.2c to 34.7c as I write this.

One day on and the short position has not changed. It remains at 1.32%. The share price closed on its lows yesterday, but is up a massive 0.5c as I write this. Was 34.5c the bottom?

SNOOPY

[Snoopy]

One day on and the short position has not changed. It remains at 1.32%. The share price closed on its lows yesterday, but is up a massive 0.5c as I write this. Was 34.5c the bottom?

To answer my own question, no. Arrium down 1c to 34c as I write this. The short man position is now only 1.09% though.

Just as an aside, careful reading of the 'Shortman' fine print shows me that all of this shortman data I have been quoting is four days old.

http://www.shortman.com.au/stock?q=ARI

"Data graphed above represents aggregate short sales, provided by ASIC with a lag of 4 trading days (T+4). The ASX releases non-aggregated daily short sales figures which can be used as an indication of short sales activity within this 4 day window. These figures are released by the ASX daily and cover the previous days activity. This activity is listed in the table below, and is usually updated at 11:30am Sydney time. Alert symbols indicate the stock has been shorted more than 0.5% on the day."

15.8m short sales were recorded on Thursday 9th October. That accounted for the 'alert' signal sent to shortman today, and know doubt means that the shorts may rise again on aggregate in coming days.

I must say, it is all a bit confusing for a 'shorts' newbie.

SNOOPY

[Snoopy]

From the SMH, October 20th 2014.

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The Anti-Dumping Commission is investigating a claim by Arrium subsidiary OneSteel that a raft of steel exporters including South Korea, Thailand and Turkey are injuring the company by "dumping" cheap product in Australia.

The investigation comes in the wake of Arrium's shock $754 million equity raising, undertaken to reduce debt in the face of collapsing iron ore prices and sustained losses in the steel business.

On August 8 OneSteel lodged an application requesting that Bob Baldwin, parliamentary secretary to Industry Minister Ian Macfarlane, publish a dumping duty notice in respect of steel reinforcing bar (rebar) exported to Australia from Korea, Malaysia, Singapore, Spain, Taiwan, Thailand and Turkey.

OneSteel alleges the Australian steel industry has "suffered material injury" in the form of lost sales volumes, reduced market share, lower prices and reduced profits due to the export of rebar at prices below actual product value (dumping).

OneSteel is Australia's only producer of rebar, manufacturing rebar products at Whyalla, Laverton and Newcastle. The size of the Australian rebar market was between 750,000 tonnes and 1 million tonnes in 2013-14.

<snip>

OneSteel said that the size of the Australian rebar market contracted 2 per cent in 2013-14 and that its own sales declined 5 per cent, while exports of dumped rebar from the nominated countries increased by 33 per cent.

Read more: http://www.smh.com.au/business/dumpi...#ixzz3Gr3EK1sz

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I would quibble with the 'reduced profits' bit because AFAIK, Onesteel (hence Arrium) doesn't make any money at all in their steel division, and hasn't made any for some years.

This Oz market dumping makes me nervous about investing in the former 'Onesteel' subsidiary, the now fully divested 'Steel & Tube' in New Zealand. 'Steel & Tube' are doing OK, but are they only one dump away?

SNOOPY

[Snoopy]

From the SMH, October 20th 2014.

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The Anti-Dumping Commission is investigating a claim by Arrium subsidiary OneSteel that a raft of steel exporters including South Korea, Thailand and Turkey are injuring the company by "dumping" cheap product in Australia.

And here is the crucial quote from the 20th October Steel division presentation p21.

"Sensitivity – each 1c change in the AUD/USD FX rate is worth indicatively ~ $8-$10m in EBIT pa assuming no change in raw material costs, demand levels and SE Asian USD margins from FY14."

And from p22

"We are working towards lowering our overall coal costs. We increased the semi-soft coal blend at Whyalla from 25% in FY13 to 40% in FY14 and are looking to further increase this to 45-50% in FY15."

From p32

"(Imported competitive) Products now under investigation (for dumping) account for ~65% of (Arrium's) Steel’s sales volumes"

SNOOPY




[percy]

You have balls of steel to be invested in this one Snoopy [very funny pun intended LOL]

I would have thought "Pig Iron" brain!!!! lol

[Snoopy]

I would have thought "Pig Iron" brain!!!! lol

Since pig dogs have to be quite intelligent, I'll take the pig iron brain, the steel balls (which are nevertheless probably hollow if made from a Onesteel extrusion) and a few brass buttons on my dog tunic which I think I can recycle as scrap.

I must admit this has been a steep learning curve as I come to grips with the headwinds facing the smaller iron ore producers. But can you imagine NZ -with cows- without a butter factory? That would be like Oz -with steel- stopping making Holden cars! Will Mr Abbott have the steel to keep making Oz steel? Or will the foreign steel dump send Onesteel to the dump? Keep your steel tuning forks tuned for the next instalment.

SNOOPY

P.S. And just look at Mr Market. ARI up another 0.5c today to 34.5c.

[Snoopy]

Holden is closing down. As is Ford. And Toyota. No more homemade cars in Oz.

Next you'll be telling me that Tony Abbott's new car is a BMW.

SNOOPY

[Snoopy]

P.S. And just look at Mr Market. ARI up another 0.5c today to 34.5c.

I see we have a new substantial shareholder on the register. "Allan Gray Australia". They seem to be tied up with the Orbis family of investment funds. Anyone know anything about them?

SNOOPY

PS Share price up 0.5c to 33c as I write this. Arrium short position down to 1.46% as pe rthe latest available information (23rd October). That was the biggest fall in any short position for the week over the entire ASX.