Bluescope in box seat for Whyalla, InfraBuild rescue plan

An employee in front of a steel furnace at BlueScope Steel at Port Kembla steelworks in Port Kembla, Australia. Picture: Brent Lewin/Bloomberg

Bluescope has been in prolonged detailed talks with the South Australia government, as it is set to wind up as the reluctant saviour of the Whyalla steel works, say market experts.

But taking ownership of the troublesome but strategic asset may be a bridge too far for the $11bn blue chip stock that is kicking goals with its US business and strategy of sticking to flat steel products.

DataRoom sources say that so far, Bluescope has the inside run on a plan to take the reins at Whyalla from Sanjeev Gupta’s GFG Alliance, although commercial terms are yet to be agreed.

Yet experts believe that’s likely to be in the capacity of a manager rather than an owner of the uneconomical South Australia operations, which would remained owned by the state government at the expense of the taxpayer.

More interesting to Bluescope, which is advised by UBS, is likely to be the steel manufacturing operations of Whyalla’s sister company Infrabuild, which is also hanging in the balance with administrators soon expected to be appointed.

Infrabuild is buckling under about $1bn of debt, and Bluescope would likely want BHP’s former One Steel assets that is now InfraBuild (excluding Whyalla) which currently has about 70 per cent market share and manufactures reinforcing steel.

It would be a new market for Bluescope, but a profitable one, and a deal would rest on Australian Competition and Consumer Commission approval.

Meanwhile, Trans-Tasman operator Vulcan Steel would likely line up for InfraBuild’s steel distribution assets.

The loss making Whyalla is believed to be owing about $300m to its creditors, which are thought to be groups such as Aurizon and other trade groups, including one out of Western Australia owed about $20m, sources say.

Meanwhile, the South Australia government, which passed new laws to place Whyalla into administration on Wednesday, is owed money from unpaid royalties worth tens of millions of dollars and $15m owed to SA Water.

The Australian reported South Australia Premier Peter Malinauskas said it was unacceptable for such an important, critical piece of economic infrastructure for the nation to be in a situation where its ongoing operations were so severely compromised.

KordaMentha is the administrator, the same group that handled Whyalla when its parent company Arrium collapsed.

At that time, when GFG bought Whyalla, South Korea’s Posco was an underbidder, although is not expected to be part of the current solution.

Meanwhile, private equity has been ruled out.

Both Bluescope and Whyalla, formerly part of One Steel, were previously part of BHP.

Sources believe that the iron ore mine to feed the steelworks at Whyalla was more valuable to GFG than the steel works that have been severely under invested in.

Whyalla, which was used to aid the British Commonwealth’s efforts in World War II, is considered important for national defence as the only long steel manufacturing site in the country and strategically located at the bottom of the country in the event of an invasion, in a similar way to Korea’s Posco steelworks.

It employs virtually the entire town of Whyalla, which means a collapse of the operation is likely to cause major unemployment problems for the town and mortgagee sales just months before a federal election.

In a statement, Bluescope said: “BlueScope stands ready to provide technical and operational support for the Whyalla Steelworks, as it has previously, should it be required.”

“We also believe the Whyalla Steelworks provides importawnt sovereign capability for the nation.”

InfraBuild’s steel distribution business is Australia’s largest processor and distributor of long steel products through its electric arc furnaces and produces 1.4 million tonnes of recycled steel across the country.

It operates at over 140 locations nationally, including 26 domestic recycling centres and 113 retail and distribution sites.

As well as arc furnaces to make reinforcing bar, rod to make wire products such as fencing wire and merachant bar, it owns a mill to make rectangular hollow sections, and its distirubtion units operate all over Australia, cutting and bending the reinforcing steel for about 70 per cent of concrete structures made in Australia.

In 2023, InfraBuild was generating about $6bn of annual revenue and $239.6m in net profit.

Infrabuild said it was a separate company from One Steel Manufacturing (Whyalla Steelworks) and said its supply chain was resilient.