Australian resources company Arrium is shutting an iron operation it bought in 2011 for $320 million, and has flagged more than $1.3 billion in write-downs in a cost-cutting drive prompted by the collapse in iron ore prices.
Margins for smaller iron miners have been under huge pressure in recent months as the iron ore price has been crushed in recent months because of slowing Chinese demand and significant increases in supply by the major mining companies BHP and Rio. The commodity was down another 1.5% overnight, to $US66.79.
Earlier this week China’s Citic Pacific flagged a write-down of up to $A1.8 billion on its Australian Sino Iron operation.
Arrium said it expected underlying earnings before tax, depreciation and amortisation for the half year ending on 31st December 2014 to at between $A180 million and $A190 million.
The company said the “re-design” of its business “results from the substantial fall in iron ore prices over the last half, as well as increased uncertainty around the timing and extent of any price recovery. Iron ore prices are currently at five year lows, and down ~45% on prices for the prior financial year. The extent of this fall has moved Arrium Mining to a position where it is absorbing cash, despite significant work and achievements in reducing costs and capital expenditure.”
The ABC reported 600 jobs would be lost as a result of the Southern Iron closure.
Arrium’s CEO Andrew Roberts said: “The business is able to move to a lower cash cost operation through its flexibility to alter volumes, grade and costs. We are able to ‘mothball’ our Southern Iron operation and optimise our lower cost Middleback Ranges operation, including increasing the utilisation of its supply chain to deliver approximately 9Mtpa of high quality, lower cost export iron ore for sale.”
It’s a huge cut in output from the previous level of 13Mtpa.
Cash costs of iron being exported to China are expected to fall by 20% as a result of the move, from the current level of $A71 last financial year to $A57 in FY16.