Arrium Steel Placed in Voluntary Administration 5

Thursday, April 7th, 2016
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Federal industry minister Christopher Pyne says the management of troubled steelmaker Arrium is to blame for putting thousands of jobs at risk.

Troubled steel and mining group Arrium has been placed in voluntary administration, following discussions with its lenders.

The company, which suspended trading in its shares on the stock exchange on Wednesday, has appointed Grant Thornton as administrators, with executive control to be transferred immediately.

Arrium shares were put in a trading halt on Monday, and suspended on Wednesday, after its lenders rejected a $US927 million ($A1.23 billion) funding deal with Blackstone fund GSO Capital Partners that would have involved bankers taking a severe haircut on their debts.

The cash-starved company had struggled to come up with alternative proposals.

“It has become clear to the board 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 on Thursday.

Grant Thornton say the administrators will maintain business as usual across the group’s operations, but will undertake an urgent and comprehensive review of the core Australian steel and mining businesses.

“Voluntary administration provides Arrium and its stakeholders time to develop options that will help preserve long-term value and optimise the position of its creditors,” Grant Thornton managing partner Paul Billingham said on Thursday.

Arrium, formerly known as OneSteel, has been hit by the plunge in iron ore and steel prices over the past two years and delivered a full-year loss of $1.9 billion in 2014/15.

The company, which formerly operated as mining giant BHP’s long steel products division, has been weighed down by a $2.1 billion debt load, as its flagship Whyalla steelworks and iron ore mining business in South Australia continued to drain cash.

However, its Moly-Cop business, the world’s largest supplier of grinding media used in mining and construction, has remained profitable.

Arrium shares last traded at 2.2 cents, and have lost nearly 80 per cent of their value in the past three months.

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  1. Emo

    Thus is what happens when thee government allows other countries to dump their inferior and cheep steel in Australia. The free trade agreements Australia signed with China, South Korea and Japan will make matters even worse when they dump other products here in an effort to wipe out their Australian competitors..
    Exports to the US and Thailand may have slightly increased recently but just wait and see who will be the big winners when China and South Korea take full advantage of the free trade agreements. It won't be Australia that's for sure and when the nasty Trans Pacific Partnership is up and running there will be even more unfair foreign competition for Australia businesses.
    This Abbott/Turnbull government has sold this country out and destroyed the manufacturing industry. The death of Australia's steel industry will mark the end of manufacturing in this country forever.

    • David Roberts

      Why do we have Australian Standards if imported products don't comply with these requirements?
      Protecting Australias borders should extend to our vital manufacturing industries as a matter of course.

  2. stever

    If a company enters voluntary administration of course management are to blame, it is voluntary and thus they did enact it.
    Not doing so might lead to them being personally liable for debts of the company.
    Did Chris Pine explain the reason they needed to do this. No.
    It is quite simple really, steel has dropped to a price point where the company cannot make it at a profit.
    I hope they can be saved as we are running out of steelmakers here in Australia.

  3. John Sands

    The same story is being repeated everywhere as China continues to overproduce on poor quality product which has little regard to safety standards in the country of export. In 2014, China dumped around 108 million tonnes of excess product on world markets. In 2015, it dumped a further 50 million odd tonnes.

    The fact is, dumping is killing everyone and China is engaging in blatantly unfair trading practices.

  4. Bruce Christopher

    Seems a cheap shot without understanding the complete story to me. The Australian steel industry, including many fabricators, can survive without subsidies, but with a level playing field on quality compliance, macro economics and anti-dumping. The problem as I've experienced is the lack of technical expertise, longer term thinking or ability to carry out basic double-bottom-line economics during the procurement process of steel products – whether by Government or private enterprise.

    One of the manufacturing businesses I ran previously purchased a significant amount of Onesteel products. A careful evaluation over time was carried out while purchasing the majority of product locally along with various offshore sourcing, which on the surface was significantly cheaper and stated compliant to standards. The study considered inventory costs and stronger cash flow outcomes, regular availability, consistent quality compliance, rework, handling, weldability, coatability (paint or galvanising) and future sourcing stability (nurturing the local option with key lines rather than cherry-picking low volume items). The relativity of material to overall costs was also factored.

    The outcome was that the imported product needed to be at least 20% cheaper to even consider as an option, but even then not taking into account the hassle factor of inconsistencies or the triple-bottom-line issues of supporting Australian industry. The continued support of Onesteel was a no-brainer, yet this type of full evaluation is rarely done these days due to short term thinking or lack of depth of scrutiny skills. Apathy is the biggest threat to Australian manufacturing.