‘Hard-wired to make losses’: Whyalla steelworks bleeding $1.5m a day

Whyalla steelworks was losing $1.5 million a day before being put into voluntary administration and owes creditors $1.34 billion, including $570 million to entities owned by British industrialist Sanjeev Gupta, which administrators have flagged as a disputed claim.

The steelworks in South Australia was plunged into voluntary administration two weeks ago owing employee entitlements of $189.7 million, the SA state government $40.2 million, and other secured creditors $281.5 million. Unsecured creditors are owed $837 million, the administrators appointed to sort out the mess, KordaMentha, said.

“There are a lot of people at this meeting who are owed a lot of money, and that is not lost on us,” administrator Sebastian Hams told a creditors’ meeting on Monday.

The Whyalla steelworks in South Australia is in adminstration for the second time in less than a decade.Credit: Ben Searcy

The steelwork’s mounting debts have left businesses and contractors reeling in Whyalla, an industrial town of 22,000 people about 380 kilometres north of Adelaide, where it employs about 1500 people and another 2500 contractors.

“One of the reasons this business is still here is because of the goodwill and the human capital and the supplier capital that’s been put in place to keep this business running,” Hams said.

Unions representing steelworkers said 619 of their members are owed $85.6 million. Another 423 salaried employees are out of pocket $62.5 million.

The company’s troubles prompted South Australia’s parliament to approve dramatic bipartisan legislation two weeks ago that enabled the government to call in voluntary administrators.

The day after the steelworks went into administration, Prime Minister Anthony Albanese and SA Premier Peter Malinauskas visited Whyalla to jointly announce a $2.4 billion rescue package aimed at upgrading the plant’s furnace and saving thousands of jobs at the site.

Gupta’s debt-ridden GFG Alliance, which owns OneSteel Manufacturing, the Whyalla steelworks company in administration, has been teetering on the brink since its key funding partner, Australian-founded Greensill Capital, collapsed in 2021.

Whyalla’s blast furnace is proving unreliable. A shutdown that ended in January this year cost the company millions.

A statement from OneSteel’s directors, Sanjeev Gupta and Ian Hunter, read out to creditors at the meeting, said that “significant operational and financial challenges” at the steel mill halted production last year, with output just 25 per cent of normal capacity.

The directors said they had a plan to arrest the slide in losses and break even by mid-year. “The program was working. We were steadily ramping up production while revenue, through additional steel sales, was continually increasing.”

But the administrators said in the seven months to the end of January this year, the company generated a loss before income tax of $319 million. The plant was running low on stock, hadn’t been spending on maintenance or repairs, and a significant number of assets were pledged to suppliers because of the cash shortage. Suppliers, transport providers, contractors and stevedores are owned significant sums and were being paid on an “as needs basis”.

“It’s really important to acknowledge that there’s some agreements in place here with various related parties that mean this business is hardwired to make losses,” Hams said.

Of the $570 million owed to Gupta’s entities, $144 million is claimed to be secured, mostly relating to alleged prepaid sales, the administrators said. Gupta also owns the steel manufacturer InfraBuild which operates electric arc furnaces in NSW and Victoria and is unaffected by the administration. His companies are intricately linked and often pay each other for goods and services.

The SA government signed a funding and indemnity deed with KordaMentha in February for a $100 million upfront payment to keep the company trading and pay expenses. Another $400 million is available for any liabilities incurred during the administration.

KordaMentha were appointed administrators of the Whyalla steelworks and its associated iron ore mines last month, on February 19. It’s their second stint at running the steelworks after orchestrating the sale of the Whyalla plant to Gupta nine years ago for $700 million following the collapse of then-owner Arrium.

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