Steel overhaul looms as Posco wins Arrium
Korean steelmaker Posco promises a $1.4 billion overhaul that should give Whyalla a future.
Korean steelmaker Posco finally has one hand on Arrium and its Whyalla steelworks, with the group promising a $1.4 billion overhaul that should give Whyalla a future.
Posco and its partners Newlake Alliance Management and JB Asset Management were late yesterday named as the preferred bidders for Arrium, 14 months after the company collapsed under the weight of about $4bn in liabilities.
The deep-pocketed consortium’s next step will involve finalising commitments from the federal and South Australian governments over assistance, with the bidders looking to receive some help towards maintenance costs while they overhaul the Whyalla mill in coming years.
The group plans to upgrade Whyalla to include Posco’s Finex steelmaking technology and a gas power plant. The Finex technology is touted as a cheaper and cleaner type of steelmaking compared to the existing configuration of the Whyalla mill.
The South Australian government had already flagged it is willing to commit $50 million in cash towards any future upgrade of Whyalla under its new ownership.
Arrium’s administrators, KordaMentha, said in a statement they would work with the Posco consortium to finalise the sale contract as soon as possible.
“After a 14-month administration and a nine-month sale process, we are now an important step closer to providing certainty to employees, creditors, suppliers, customers and the Whyalla community,” KordaMentha partner Mark Mentha said last night.
“We thank all those people for their patience and support during one of Australia’s most complex administrations.”
Australian Workers’ Union national secretary Daniel Walton, who represents Arrium’s 2000 workers, said Arrium and Whyalla were now “on the brink of salvation” and called on the state and federal governments to work with the Korean consortium.
“This is a deal our governments should absolutely make. It is in the national interest for Arrium’s operations, especially in Whyalla, to stay running,” he said.
“Australian steel has a viable, prosperous future, and can continue to support thousands of excellent jobs, along with whole communities. But that will only happen if our government is willing to support industry.”
The Korean bid beat out a rival offer from Britain’s Liberty House, owned by the British billionaire Sanjeev Gupta.
Mr Gupta, who has reinvigorated industrial wastelands in Britain and the US through a string of acquisitions of steelworks, last month told The Australian: “I don’t make workers redundant”.
KordaMentha late last year secured the sale of Arrium’s old Moly-Cop business, which made grinding balls and consumables for the mining industry, to US private equity firm American Industrial Partners for $1.6bn.
Posco has had an eye on Arrium since at least 2012, when it launched a $1.2bn offer that was rejected by the group.
It remains unclear just what the sale means for Arrium’s creditors, with the terms of the deal still confidential at this stage.
On top of the steelworks, the Posco consortium will also pick up Arrium’s old South Australian iron ore mines and the company’s small but profitable east coast steel operations.
The deal is subject to approval from Arrium’s committee of creditors and the Foreign Investment Review Board.
South Australian Treasurer Tom Koutsantonis said the state Labor government would begin detailed negotiations with the administrators, federal government, workers, unions and the South Korean consortium to support the final sale.
“The investment proposal put forward by the Newlake Consortium aims to make Whyalla the first city outside of South Korea to adopt the innovative Finex process for steelmaking developed by Posco, one of the world’s major steelmakers,” he said.
“Having seen first-hand the impressive technology and scale of the Posco business, it is exciting to be working with a company of such high regard with a proven track record that can truly transform the Whyalla operations.”
However, he cautioned that there was “still some way to go in this process”.
Federal Industry Minister Arthur Sinodinos last night welcomed the announcement, saying the Turnbull government will continue to work with the South Australian government “to secure the best possible outcome for Arrium and the people of Whyalla”.
Whyalla Mayor Lyn Breuer said the appointment was “really, really good news” for the steel city. “We’ve gone from a position of doom and gloom and now we believe we have a future,” Ms Breuer said.
“This company is prepared to invest in our community and the steelworks, this will lift the mood of the town and raise morale. We’re thrilled to bits.”
She said the regional city was prepared for changes at Arrium, but did not expect major job losses.
Whyalla Chamber of Commerce and Industry chairman Ron Hay said the region had been in limbo for 14 months.
“It starts to bring the era of confidence back to Whyalla,” Mr Hay said. “We still have a way to go and even once the sale process has been completed, Whyalla will have to adjust to the new business coming in.”
Federal Labor’s industry spokesman, Kim Carr, welcomed the announcement of a preferred bidder as an “important step towards ending the uncertainty for the region”.
“The successful rebuilding of the Whyalla steelworks is in the national interest and the interest of the workers and their families,” he said.
“Labor knows that further industry-wide reforms will be required to maintain Australia’s steelmaking capabilities and will work with the Turnbull government in a bipartisan manner to secure the industry’s future.”