Closing Whyalla’s steel, iron ore operations could be worse than end of SA car industry

ARRIUM’S administrators will hold a crucial creditors’ meeting to report back about the viability of the embattled business but have assured workers that it will continue to trade until then.

• IN-DEPTH: Historic city SA can’t afford to lose
• ANALYSIS: The good, bad and ugly of Arrium
• WHITE KNIGHT: Who can be Arrium’s saviour?
• EXPLANATION: What is voluntary administration?
• DANIEL WILLS: Governments have no choice but to unite on this

ARRIUM’S administrators will hold a crucial creditors’ meeting “on or before 13 May” to report back about the viability of the embattled business, but have assured workers that it will continue to trade until then.

Grant Thornton has told creditors and workers that by this time, it would provide a recommendation as to whether it would:

EXECUTE a deed of company arrangement;

END the administration; or

WIND up the company.

The first creditors’ meeting will be held on April 19, where Grant Thornton’s role as administrator must be endorsed or challenged.

That meeting will be held in Sydney with a live webcast available to Whyalla and online.

“Voluntary administration will give the group time and space to develop options that both reserve value and optimise the position of its stakeholders,’’ Grant Thornton announced.

“This starts with identifying ways that core performance can be improved in key business units.

“To that end, the administrators will be undertaking a comprehensive and through review to identify the steps that can and should be taken to stabilise the Australian steel and mining businesses.

“The outcome of that review, which may take two or three months, cannot be predicted but our assessment shows, with the support of its customers, suppliers, lenders and people, the group can continue to operate on a business as usual basis while that work is undertaken and indeed for the foreseeable future.

“The overseas operations of the group, principally the Moly-Cop business, should be largely unaffected by this appointment. However, they will be supported by Grant Thornton partners in each country in understanding their needs and ensuring that they too can operate on a business as usual basis.

“This appointment delivers a unique opportunity to operationally and financially restructure the Australian business of the group. It will, however, require the support of all stakeholders in a collaborative effort to preserve business value, employment and the communities where the group operates.’’

Paul Billingham, from administrators Grant Thornton, met with union officials in Adelaide today and said the workers at Arrium’s Whyalla operations and across the country were their first concern.

He said the meeting was open and constructive and the administrators had a plan that relied on all the stakeholders supporting Arrium.

“It’s early days but we’re very happy with the support we’ve had from creditors, suppliers and customers,” Mr Billingham said.

“Our forecasts show that we’ve got no particular cash concerns.

“It really depends on customers continuing to support Arrium, buying the products, that’s very important.

“We see no particular issues there.”

Arrium’s board on Thursday called in Grant Thornton after the collapse of a debt restructure deal proposed by US “vulture” capital fund GSO Capital Partners on Monday, and worsening relations with its creditors — including Australia’s big four banks, which are owed an estimated $1 billion.

The administrators will assess the viability of Arrium’s three business divisions, with the fate of the Whyalla steelworks and mining operations, which employ 3000 people, hanging in the balance.

The Australian Workers Union has also described today’s meeting as positive.

Mr Billingham will later meet with state Treasurer Tom Koutsantonis and federal Industry Minister Christopher Pyne ahead of a meeting of Arrium creditors later this month.

Both Mr Pyne and Mr Koutsantonis want the company to trade out of its difficulties.

The SA Treasurer has called for calm heads and says the State Government is still willing to make some form of contribution to help the struggling manufacturer.

Arrium is more than $2 billion in debt.

Australian Workers’ Union national secretary Scott McDine said the process to move Arrium forward would take time to resolve but there were some positive signs.

“This is a very disconcerting period for a lot of people, for a lot of our members, in a lot of regional centres,” he said.

“These jobs are critically important to Australian families, to Australian communities and also to the broader Australian economy.”

‘Worse than end of Holden’

Earlier, industry expert John Spoehr warned that closing the Whyalla operations could expose South Australia to “intense pain”, worse than the fallout from the automotive sector’s decline,

As defiant locals on Thursday vowed to fight for their city’s future, Whyalla deputy Mayor Tom Antonio declared that “we’re on a knife’s edge” and warned that closure would come at a “catastrophic” cost to the city, the state and the nation.
“We’re all hurting, we’re all bleeding,” he said.

JOHN SPOEHR ANALYSIS: This could be worse than the car industry shut-down

Mr Spoehr, director of the Australian Industrial Transformation Institute at Flinders University, said the administrators were legally bound to dispassionately assess whether the businesses could survive going forward.

Whyalla residents Daniel and Crystal Klicek with Kate Walkom and her children Bethany, 5, and Oscar, 7. Pic: Tait Schmaal

“As individuals they might be sympathetic to calls to keep the industry afloat but at the end of the day they have a very specific set of procedures to execute,’’ he said.

“The axe may fall sooner rather than later. With no acceptable debt management plan on the table, Arrium’s operations are vulnerable to a carve up.

“Profitable assets might be the foundation for a new company while loss making assets face unceremonious liquidation. Neither the banks, shareholders, workers and the community are immune from pain and the pain could be more intense than the automotive closure.’’

Federal Opposition Leader Bill Shorten said a Labor Government would “make sure we had genuine local procurement” to boost the amount of Australian steel used in infrastructure projects, and said there was a role for government in “co-investment in the steel industry”.

Whether Arrium will survive in its current form long enough to benefit from any such policies is arguable. The company was placed in administration on Thursday and Grant Thornton is tipped to split the business into the profitable “good” Arrium and the unprofitable “bad” Arrium, made up of the South Australian mining and steelmaking divisions.

Grant Thornton said on Thursday it would continue to trade Arrium on a “business as usual’’ basis, but singled out the profitable Moly-Cop business division, saying it “should be largely unaffected by this appointment’’.

A OneSteel worker in the steelworks. Picture: OneSteel Whyalla

In the most recent half-year results, released in February, Arrium said its mining business was losing money, and while its steel division made money nationally, the Whyalla steelworks lost $43 million.

Analysts say further job losses in Whyalla are “inevitable” and a closure, temporary or otherwise, of one or both of the mining and steel operations in the city — which has already been foreshadowed by Arrium — is a very real risk.

Baillieu Holst chief economist Darryl Gobbett said SA “can’t afford to let the Whyalla steelworks fail’’.

“South Australia and Australia needs a steel industry for our future economic prosperity, and Whyalla has an integral role to play.

DARRYL GOBBETT ANALYSIS: This is a warning for SA’s whole economy

“Rescuing the steelworks therefore needs a co-ordinated local, state and national response at various levels.

”The broader economic, social and confidence impacts here in South Australia would be substantial, with several thousand direct and supplier jobs expected to be lost.

“State and Federal funding will be needed but with the focus on the steel division with a possible spin-off into a separate company.’’

Mr Shorten indicated that if elected, federal Labor would implement a multi-pronged approach to supporting the steel industry, including possible co-investment and stricter rules on using Australian standards steel, as has been advocated by State Treasurer Tom Koutsantonis.

Arrium’s OneSteel plant at Whyalla. Picture: Campbell Brodie.

“A Labor Government I lead would make sure we had genuine local procurement. Governments at all levels, Council, State and Federal Government spend a lot of money on infrastructure. “What’s wrong with requiring Australian content in the steel?’’

Mr Shorten said steel dumping in Australia needed to be more tightly policed and said there was a role for industry bailouts.

“I, for one, haven’t swallowed a right-wing economic textbook and simply pretended there is no role for Government to help with co-operative investment,’’ he said.

Mr Pyne was talking down the prospects of any bailout and said the best option for everyone concerned was for Arrium to trade out of its current troubles.

“The surest way for the banks to receive their money back from Arrium, the $2.8 billion that they owe their creditors, is for Arrium to trade out of its difficulties,” Mr Pyne said.

He said a taxpayer-funded bailout was a “very blunt instrument” when the government had other levers to help the company, and Arrium had not approached the government to ask for one.

Mr Koutsantonis said he has spoken with his counterparts interstate about Arrium’s fate and, along with Mr Pyne, was meeting the administrators in Adelaide today.

Mr Koutsantonis said the Whyalla steelworks would continue to operate while administrators took charge.

“Panic is not an option here,” he said.

Inside the OneSteel plant at Whyalla. Picture: OneSteel Whyalla

“There will be no new redundancies at Whyalla. All employees across the country will be required to report to work as usual and will be paid.”

State Independent Minister for Regional Development Geoff Brock declined to comment.

Premier Jay Weatherill, on a trade mission in China, said: “This is the beginning of a long and difficult path forward for the Whyalla community.

“They have already had to endure very substantial job losses in both the mining and steelworks operations.

“I’ve spoken to the Prime Minister and we have asked our State Treasurer and Federal Industry Minister to continue to work closely together to secure Whyalla’s future.”

Prime Minister Malcolm Turnbull told The Advertiser: “The government is working with all parties to support Arrium through this period of transition.

“I welcome the commitment from Grant Thornton, the administrator, that Arrium will continue to trade business as usual at this time.”

IG market strategist Evan Lucas said the problem with the steel mill was that it was an ageing asset, which had struggled to make money in recent years.

“As much as all of the posturing is coming out of the politicians at the moment it’s an inefficient asset,’’ Mr Evans said.

“And Whyalla has a big questions over as to what it’s going to do with the steel mill.

“Whatever way you cut it, there will have to be job losses, whatever way you cut it, the assets will have to be split up.’’

Morningstar mining analyst Matthew Hodge said, “The administrators could go for another round of cost cuts, or decide to close down the iron ore and steel businesses.”

Grant Thornton said it will hold the first creditors’ meeting on April 19, and is expected to provide a report to creditors about the company’s affairs within five weeks.

— with Daniel Wills