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What You Need to Know about Arrium Limited

What You Need to Know about Arrium Limited
In spite of the performance in the mining segment, the group has achieved an EBITDA of A$44million, a 238% improvement to the PCP
Mar 08, 2016 By Ben Khouri Tags: ARI

Mining and Materials producer Arrium Ltd (ASX:ARI) has made some significant announcements recently, as it entered into an agreement with GSO Capital regarding its recapitalisation plan and also released financial results for the half year ending 31st of December 2015. While the rise in iron ore prices on Monday night boosted Arrium’s share price, let us review the company’s operations in the past six months.

Recapitalisation Plan

Arrium recently entered into an agreement with GSO Capital Partners LP in order to establish a recapitalisation plan for the company. This plan was initiated as a result of Arrium’s strategic review which was aimed at reducing the company’s debt levels in a low iron ore price environment.

GSO and Arrium have also entered into a US$140 million senior secured stand-by loan facility agreement, whereby GSO will provide additional liquidity to Arrium once the company’s recapitalisation plan is in progress.

If the recapitalisation plan is implemented, GSO is set to fund up to US$927 million to Arrium. Upon successful completion of the plan, Arrium aims to reduce its debt significantly, allowing the company to retain its world-class mining and consumables business and restructure its steel and mining businesses.  As part of the plan, Arrium also seeks to obtain secured working capital facilities of $500 million.

Arrium’s Chairman, Mr. Jerry Maycock commented on the plan: “The fundamental priority now is to create a sustainable capital structure. The recapitalisation plan is designed to deliver increased equity and new long term debt facilities.” Mr. Maycock further added that the recapitalisation plan is the best option available to the company, as it would provide its shareholders with an option to participate in its upcoming rights issue.

Revenue Down 14%

For the 6 months ending 31st December 2015, the mining and materials producer’s revenue was down 14% compared to the PCP, to A$2.7billion. Moreover, the group endured both a statutory and underlying loss after tax over the course of the period, to A$235.8 and A$24.1million respectively.

Despite the restructuring improvements in the companies mining segment, including a A$20million cost reduction over the course of the period, the group’s mining segment incurred noticeable losses. The group attributes last period’s loss to the significant fall in Iron ore prices, with prices being at their lowest in mid-December, to US$38/dmt.

In spite of the performance in the mining segment, the group has achieved an EBITDA of A$44million, a 238% improvement to the PCP (1HFY15: A$13million). The group attributes these improvements with a 5% increase in domestic sales. With demand particularly coming from increases in residential construction, along with the commencement in infrastructure projects.

Outlook

The group remained optimistic with its outlook. With mining, the company expects demand for seaborne iron ore to remain strong, whilst expecting prices to remain under pressure, due to the ongoing supply glut in the iron ore market.

Within their steel segment, the group expects domestic demand to continue, particularly with the increase in residential construction, government infrastructure projects, and a growing rural sector.

ARI Up Over 40%

In response to the recovery in iron ore prices to over US$60/wmt, ARI is up 42% (11.30 am AEDT), to $0.034. 

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Ben Khouri Author: Ben Khouri Mar 08, 2016

Ben Khouri is a financial editor for Wise-Owl with a particular focus on the top ASX 300 companies. Having a vast background in economics and finance, Ben provides financial commentary & analysis as well as global market updates, which guide investors in devising investment strategies. Ben specialises in analysing economic data and global events from around the world and examines the impacts they have on the major equity markets.

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