Image: GFG Alliance. Photography: Sean Kelly.
BY ELIZABETH FABRI
BRITISH billionaire Sanjeev Gupta’s GFG Alliance is on an Australian spending spree. The new owner of Arrium’s Whyalla has big plans to put Australia on the map as a global leader in vertically integrated steel and aluminium production — and the path to achieve this is nothing short of impressive.
GFG’s landmark acquisition of Arrium’s Whyalla steelworks in August 2017 was just the first step in Sanjeev Gupta’s plan to transform Australia’s steel and aluminium industry, and become one of the country’s largest renewable energy producers.
Mr Gupta has already made a big name for himself and his $14.5 billion business in the UK— and more recently the US and Europe — where he has rescued and revived a number of distressed metals, mining, engineering and power generation operations over the last three years.
His core business strategy is to own and manage as much of the supply chain as possible –adding value at each stage.
The GREENSTEEL model is designed to secure a competitive, low-carbon future for metal manufacture through recycling, use of renewable energy and vertical integration; defying common perceptions of metal manufacture as a dying industry.
In Australia, Mr Gupta plans to replicate this business model.
In April 2017, the group announced it had employed senior international metals and mining executive Michael Morley to spearhead the acquisition of the Arrium business.
But Arrium, the cornerstone of the Group’s Australian strategy, wasn’t always a ‘done deal’ for GFG Alliance.
The acquisition took months of back and forth and extensive research, Mr Gupta’s right hand man, GFG Alliance chief investment officer and SIMEC Group energy and mining chief executive Jay Hambro said.
“It was very tiring, I commuted back and forth from Europe to Australia about 12 times last year, and never for more than about five days at a time,” Mr Hambro told The Australian Mining Review.
“But doing that sort of travelling gives you plenty of time to think and contemplate your actions, and I think we set about that [acquisition] process very effectively.
“We did a huge amount of due diligence on all of the businesses, and we had a very good team analysing it which put us in a very strong position.
“We also enjoyed a strong relationship with the Government and got to know Malcolm Turnbull and Minister Sinodinos very well.
“They said ‘look, we want companies like you in Australia, and we look forward to working with you to provide the environment you need to invest here’.”
The acquisition was a two horse race, with a Korean consortium also vying for the Arrium assets.
However, Mr Hambro said it was always comforting knowing the Australian people and Government were in its corner.
“I think it was heart-warming whenever we were involved that people wanted us there,” he said.
“We are a group that has a long history of industrial growth, a very strong history of industrial turnaround, and so we were always very welcomed by the management team because I think they saw us as a safe pair of hands to steward this business onwards.
“There were a many moment where they [the Korean consortium] were beating us, and we were beating them, but I was also confident that we had the best proposition for the business and that’s what we’re delivering now.”
A Turnaround Strategy
Through its Arrium takeover, GFG Alliance inherited the 1.2mtpa Whyalla
steelworks and its 10mtpa iron ore mining operations in South Australia’s Middleback Ranges; Whyalla port and rail; the OneSteel steel Scrap Recycling business; 4mtpa OneSteel secondary steelworks; Australian Tube Mills; and OneSteel Reinforcing, ARC and OneSteel metal centres.
The mining and port operations will be operated under GFG’s SIMEC Mining and SIMEC Infrastructure business, while the steelworks and OneSteel assets will be operated under the umbrella of Liberty OneSteel.
SIMEC’s new mines incorporated the Iron Baron, Iron Knob and South Middleback Ranges mine sites, which collectively produce hematite and magnetite iron ore that is respectively railed and piped to Whyalla.
Following the takeover, Liberty OneSteel embarked on a 100-day review of the business to finalise a transformation plan to ensure the long term sustainability of the Whyalla operations.
Mr Hambro said most of the mistakes that had been previously made were at a corporate level regarding the balance sheet.
“We didn’t turn up on day one and say ‘you’re doing it wrong – you need to do it the GFG way’,” Mr Hambro said.
“We set a 100 day program whereby we listened to and worked with [Arrium employees] to understand how they were [running the business], to understand [their] bright ideas for the future of the business, and also try to provoke a broader thought program to discover different ways they could do things,” Mr Hambro said.
“We had a fundamental plan that we were recommending, but there is obviously no point when you buy a business to impose your plan on day one.
“You need to understand the business, and the people that understand it best are those that have worked there for many years.”
The 100 day program concluded in December, and later that month GFG announced its final concept plan for a $1 billion transformation of the Whyalla operations.
The transformation investments included feed preconditioning and utilising latest technology to reduce ferrous feed costs for the steelworks; co?generation and the capture of process off?gases to improve steelworks energy efficiency; targeted modernisation and capacity upgrade investments across the steelworks and the rolling mill; and investments to increase production by about 50 per cent to 1.5mtpa.
The group was also looking to improve logistics around the transport of materials from the mine to Whyalla, as well as shipping.
“We brought in our global network to support that. Our shipping team based in Singapore spent a huge amount of time working with the Whyalla team to help them fit into our global [transport] network moving material around the world,” Mr Hambro said.
The group was now undertaking a detailed feasibility study on the transformation, of which $50 million will be funded via a South Australian Government grant.
“We are moving it effectively from concept stage through to where you can press the button on a plan to construct, and that will begin to be enacted throughout this year,” Mr Hambro said.
The next step in its master plan was an acquisition of Glencore’s Tahmoor metallurgical coking coal mine in NSW in January.
Mr Gupta said the deal was a key element of GFG’s transformation plan for the Liberty OneSteel Whyalla steelworks to optimise and expand production.
“Through this purchase we secure and de-risk an important feed for the Whyalla steelworks,” Mr Gupta said.
“This, together with our iron ore mines in South Australia, now makes GFG the only fully-integrated Australian steel producer, whether from iron ore and coking coal to primary steel, or from scrap metal and renewable energy to GREENSTEEL.”
Mr Hambro added the Tahmoor coking coal was well known and regarded in the domestic and international markets for its grade and quality.
“It was a natural buy for us because it is a supplier for Whyalla,” Mr Hambro said.
“At the moment it does about 5 per cent of its product to Whyalla, we have a view that we could take that up to 30 per cent.”
Later in the month, SIMEC Mining also received approval for two mining leases to develop the Iron Sultan mine, which will provide 600,000 tonnes of ‘cheap’ iron ore to the steelworks, and the Iron Warrior mine, capable of exporting up to 1.5mtpa.
When asked when these could be brought into production, Mr Hambro said it was not immediate, but would be “within the next few years”.
GFG Alliance chief investment officer and SIMEC Group energy and mining chief executive Jay Hambro
In early February, GFG Alliance’s SIMEC committed $1.7 million towards pre-feasibility studies for its Middleback Pumped Hydro project.
Middleback is a key plank in the Group’s plan to establish 1 Gigawatt of additional dispatchable renewable energy generation in South Australia for the Whyalla steelworks and other industrial and commercial users.
The pumped hydro project would use exhausted mining pits from the SIMEC Mining division as reservoirs for storing hydro power. Study costs will be partially supported by a $500,000 grant from the State Government.
Mr Hambro said role of Tesla’s recently installed battery array in South Australia for power storage was widely misunderstood.
“If you fully used those batteries they would last for four minutes at 100MW. Our pumped hydro is 100MW but would last for four hours,” he said.
“The battery array serves an important purpose, but I don’t think it serves the purpose that people perceive it to serve. It does something called frequency response and it deals with short term blips in demand and supply, whereas pumped hydro is a hard work course of generation.”
Mr Hambro encouraged more mining and energy companies to collaborate to utilise legacy mining projects for future renewable energy generation.
“Australia has a huge amount of scope to establish this type of generation,” he said.
“The Prime Minister says he doesn’t want to see projects that are just solar or just wind; they’ve got to have some storage component to them as well, which is very sensible.
“If you can create a storage site like we’re doing at Middleback, it absolutely fulfils what the country, and particularly South Australia, needs.”
The Next Phase
Mr Hambro did not rule out diversification into other industries when it came to future acquisitions.
“We have an opportunistic view on life,” he said.
“I have big business development team who spend their life pouring over projects and if we see a role for us in a different metal or a different commodity, we will jump on that.”
Electric vehicle manufacture could be a new market for GFG. In February, rumours circled that the group had approached General Motors to buy assets from the closed former Holden factory; a proposal that was reportedly rejected by the car giant.
However, Mr Gupta has floated plans to build a modern electric ‘people’s car’ similar to the VW Beetle, which would cost much less than the Tesla S model.
Mr Hambro said the company “definitely has an interest in electric vehicles”, but couldn’t comment on the specific situation in South Australia.
He added overall the vision for GFG in Australia was creating an integrated end-to-end business.
“Australia has a history of what mining companies call ‘dig and deliver’,” Mr Hambro said.
“You will dig up a product and ship it offshore – it’s the same in various sectors.
“Malcolm Turnbull said to me ‘Jay, we have a long history of producing wool, sending it overseas and buying Italian suits’.
“There is not enough focus in the country on adding value, and that’s what we’re doing.
“We will not just produce the steel in Australia. We will use what we now have – which is 150 distribution centres across Australia – and create a higher value-add product for the Australian domestic market and export.
“We are trying very hard to debunk the culture of ‘dig and deliver’ by generating more value within Australia.
GFG ALLIANCE IN BRIEF
GFG Alliance’s industrial and metals business Liberty is a large steel and aluminium producer and participant in high value add or ‘advanced engineering’ products. Headquartered in London with global hubs in Dubai, Singapore, Sydney and Hong Kong, the group has five divisions – Commodities, Recycling, Steel, Aluminium, and Engineering, and trades in more than 50 countries.
An acronym for Shipping, Infrastructure, Mining, Energy and Commodities, SIMEC is a fully independent company owned by Sanjeev Gupta’s father Parduman K. Gupta. In South Australia, its mining division (iron ore and coking coal) supplies the raw material for the Whyalla blast furnace and to third parties. On the energy front, SIMEC is the largest developer of renewable energy projects in the UK and specialises in trading energy and energy related commodities. It also owns commercial ports, railway stock, marine fleets, and storage facilities.
The other pillar to GFG Alliance is its Wyelands financial services group which comprises an independent bank and financial advisory services business. The British bank is focused on global trade and was established to help industry grow and enable businesses to trade more easily around the world.
Jahama Estates is GFG Alliances’ property business. It operates a wide portfolio of industrial, commercial, residential and agricultural properties across four continents with the majority in the UK. It is currently the fifth largest private land owner in the UK.