Aurizon Holdings faces long haul as share price plummets
Aurizon suffered its biggest one-day share price drop since listing five years ago after flagging $400m of writedowns.
Coal hauler and railway owner Aurizon Holdings suffered its biggest one-day share price drop since listing five years ago after it flagged up to $400 million of writedowns, issued downbeat earnings and haulage guidance and shelved its West Pilbara iron ore project.
In another worrying sign for the iron ore sector, the $4.5 billion West Pilbara project was put on ice after the heads of its joint venture partners, including Asian steel giants Baosteel and Posco, held a meeting in Hong Kong this week and decided uncertain demand and supply meant project work should stop.
While few in the market thought the project would go ahead, the fact China’s Baosteel and South Korea’s Posco think demand conditions may not warrant it is further evidence of the severity of the slump global steel markets are experiencing.
Aurizon, which was spun out of the state-owned Queensland Rail in 2010, had been a strong performer for nearly all of this year, with its shares hitting a record high of $5.69 late last month.
But since then, downbeat sentiment around coal and the growing potential for reduced haulage volumes from mine closures has sent its share price plummeting.
Yesterday, Aurizon shares fell 58c, or 12 per cent, to a one-year low of $4.36.
Aurizon said coal haulage expectations had dropped to between 202 and 212 million tonnes, down from 210 to 220 million tonnes.
Combined with lower revenue from expired customer contracts and $16m of employee share awards this would drive first-half earnings before interest and tax expectations down to between $390m and $410m. Commonwealth Bank analysts had been expecting EBIT of about $510m.
Aurizon said it would take $215m to $240m of impairments in its first-half accounts and would reconsider the $170m-plus carrying value (including $80m to $85m of capitalised project costs) of its stake in the West Pilbara project.
Most of the writedowns faced by Aurizon are on its 15 per cent stake in Aquila Resources, which it spent $225m buying as part of a $1.4bn takeover headed by Baosteel, which owns 85 per cent.
Aurizon said it would write $60m to $65m off its stake in Aquila’s Queensland and South African coal assets, with all assets apart from the Eagle Downs project being written off completely.
Eagle Downs will be valued at $8m and the South African assets will be placed on care and maintenance and put up for sale.
Other writedowns to be taken in the first-half accounts include the $30m full write-off of investigations of a Galilee Basin rail development in Queensland, and $125m to $145m for the scrapping or sale of 124 locomotives and 1343 wagons after productivity gains made them surplus to requirements.
On Monday, Aurizon managing director Lance Hockridge met with his counterparts at Baosteel, Posco and mining investor AMCI in Hong Kong to discuss the West Pilbara project.
“While the CEOs received reports on considerable progress in areas such as the capital and operating costs of the mine and infrastructure, the current market conditions and uncertainty about future supply and demand were central to the CEOs’ considerations,” Aurizon said.
“The participants are committed to consolidating the high quality work to date and minimising project costs; however, no material further work will be undertaken on the definitive feasibility studies.”
The decision will be revisited at a meeting at the end of the March quarter.
The downbeat guidance comes a week after the sudden departure of operations head Mike Franczak “by mutual agreement”.
They also follow three months after Tim Poole replaced founding chairman and former BHP managing director John Prescott as head of the Aurizon board.