Arrium has gone into voluntary administration, a victim of falling iron ore prices and a steel glut caused by overproduction in China.
The iron ore miner and steel producer couldn’t get a deal with its lenders — the banks and note holders — to restructure debt of more than $2 billion.
The administrator, Grant Thornton, said: “Our focus will be to stabilise current trading, maintain business as usual across the group’s affected operations, identify ways to restore the performance of key business units and develop an optimal solution that maximises the return to creditors.”
By law, a meeting of creditors must be held within eight business days of a company going into administration.
Arrium says talks with its lenders have ceased.
“After considering the available alternatives, in the current circumstances it has become clear to the board of Arrium that it has, unfortunately, been left with no option other than to place the relevant companies into voluntary administration in order to protect the interests of stakeholders,” the company said in a statement to the ASX.
At stake is the Whyalla steelworks in South Australia and about 1000 jobs. At the moment, the steel produced at the plant costs more to make than it can be sold for on the open market.
The company had said it was looking at mothballing the plant if it couldn’t get an injection of capital and a round of cost cutting.
Across the company, about 300 employees went in the first half of the year and another 400 are due by the end of the financial year.
Industry minister Christopher Pyne, an Adelaide-based MP, says the federal government stands ready to assist the workers of Whyalla.
“The Australian steel industry is facing substantial challenges primarily caused by the significant oversupply of steel,” he says.
Arrium, like many small iron ore producers, has seen its margins squeezed to nothing as the price of iron ore continues to fall on weakening demand for China where economic growth is slowing.
In the six months to December, Arrium’s average realised price for iron ore was $US42 a tonne, down 38% from $US68. It managed to drag down the cost of producing a tonne and delivering it to China by 11% to $A57.60 a tonne. Under current exchange rates, that’s $US1.80 below than the average price it got in the last half year.
Most recently Arrium’s lenders rejected a $US927 million recapitalisation plan by GSO Capital Partners which would have given the Blackstone subsidiary a 15% holding.
While conducting a strategic review, Arrium received interest from other companies wanting to buy parts of its business.
The company posted a half year loss of $235.8 million. Sales revenue was down 14% to $2.76 billion.
Arrium is in a trading halt. Its shares last traded at $0.022.