Low iron ore prices and insurmountable debt has forced Arrium into administration. Image: Whyalla News.
By Samantha James
IN early April, when Arrium asked its lenders – Australia’s four banks, several global banks and US bondholders – for a US$927 million life line to save it from going under, it hardly expected them to reject the package presented by alternative asset manager GSO Capital Partners.
The lenders did, however, and pushed the struggling company into administration owing its creditors more than $2.8 billion.
Arrium’s 1.2 million tonnes per annum steel plant at Whyalla on South Australia’s Eyre Peninsula is bleeding cash in the face of a collapse in steel prices and cheaper Chinese imports.
The company also owns smaller plants in Melbourne and Sydney and mining operations in the Middleback Ranges of South Australia which produce about 12mtpa of iron ore.
It employs about 8000 workers across its mining, steel and mining consumerables business units.
Arrium’s board had previously considered, and rejected, the sale of its only profitable division – the Moly-Cop mining consumables business.
Moly-Cop is the world’s largest supplier of grinding media used for crushing and grinding in the mining and construction industries.
With no other alternatives, Grant Thornton was appointed administrator on 7 April.
At Arrium’s lenders and the Australian Workers Union’s urging amid fears for the 1600 steelworkers in the region Grant Thornton was replaced by KordaMentha on 12 April.
According to the Federal Court order, KordaMentha had access to funding lines that Grant Thornton did not, including 23 Australian and international banks and 10 foreign bondholders.
KordaMentha lead administrator Mark Mentha said Arrium’s workers were understandably upset with Arrium’s management for allowing the company to fall into administration.
However, he said there would likely be a broad restructure of the company which boded well for the future of Whyalla’s steelworks.
“It’s a grieving process when a company goes into administration,” Mr Mentha told reporters in Whyalla.
“There’s shock. But by the end of the next week I’d like the think that the emotion and anger has all died down, we get through the creditors meeting and we’ll get on with turning the Arrium business around.”
By 20 April KordaMentha was renegotiating with Arrium’s lenders to secure $200 million to ensure normal business operations could continue.
“So far, we have been able to manage cash flows within the requirements, but there may come a point where we need to manage trading in respect to some critical supplies, or to manage [capital expenditure] requirements,” Mr Mentha said.
“We have had negotiations with the banks to provide credit facilities. We are looking to have a facility of around a couple of hundred million dollars.
“At this stage we probably are in the best cash position in some time.
“We have got the advantage of not having paid creditors from the time of administration, and we continue to generate sales from goods that have been supplied.”
Arrium’s creditors voted at a first creditors meeting on 19 April to appoint a committee of representatives to deal with the administrators, including ANZ, Commonwealth, NAB and Westpac, employee unions, the South Australian government, the federal government and US bondholders.
KordaMentha expected to seek an extension to the four-week time limit for the second creditors meeting, where it would be required to submit a detailed report to creditors outlining restructuring plans.