In a report to the ASX on Monday, Arrium Limited (ASX:ARI) announced it was selling iron ore at a loss in the March quarter. The miner lost $8.90 for every tonne it sold. Although the company cut its production costs to $66.90 per tonne, its averaged realised price for its lower grade iron ore was just $58 per tonne. It also announced that it would attempt to lower production costs to $57 per tonne, but higher quality iron ore is selling for $64.92 per tonne on the spot market in Tianjin. If commodity prices continue to slip, which many analysts have been predicting, Arrium may struggle to breakeven, the report said.
Iron ore prices have been waning for some time now, primarily due to sluggish global demand and over production by major Australian miners such as BHP and Rio Tinto. Prices are currently floating around US$46.70 ($59.86) per tonne and are expected to fall further. Arrium has attempted to negate its losses by closing its high cost Southern Iron operations. Instead, the company said it would focus on its lower cost operations in its Middleback Ranges assets. Despite the closures, the company increased mining production by 36 per cent to 3.622m tonnes. It also shipped 3.06m dry metric tonnes, up 1.3 per cent. Arrium reported a 1.5bn first-half loss in February. $1.34bn of the loss was attributed to writedowns due to closures. The company reported a 22m loss in first-half profits.
Shares of ARI are down 1.5c, or 8.82 per cent, at 15.5c per share around 3:15pm on Monday. ARI has fallen more than 86 per cent in the last 12 months and 27.91 per cent so far this year.
Author: Imran Valibhoy
Apr 20, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.