Arrium announces recapitalisation plan

JOHANNESBURG (miningweekly.com) – Struggling steel and iron-ore company Arrium Limited has entered into an agreement with GSO Capital Partners for up to $927-million (A$1.29-billion) in funding as part of a recapitalisation plan announced on Monday.

The recapitalisation plan was a result of the company's strategic review, which had the objective of achieving an appropriate structure and level of debt in a low iron-ore price environment.

The recapitalisation plan would significantly lower Arrium’s debt, allowing the ASX-listed company to retain its profitable mining consumables division and provide additional funds for restructuring its Whyalla-based steel and mining activities.

The funding to be provided by GSO – an alternative investment platform of global investment firm Blackstone – would comprise a six-year senior secured term loan of about $665-million and a fully underwritten renounceable prorata rights issue to Arrium shareholders aimed at raising about $262-million.

As part of the recapitalisation, Arrium would seek to obtain secured working capital facilities of about A$500-million.

Arrium chairperson Jerry Maycock said in a statement that the board considered the recapitalisation plan as the best option available to the company.

“The last 18 months has been an extremely challenging time for the company, and the board acknowledges the loss of shareholder value during this period.

“The fundamental priority now is to create a sustainable capital structure. The recapitalisation plan is designed to deliver increased equity and new long-term debt facilities. It will allow the company to retain its world-class mining consumables business, which is performing well. It will also provide funding to use towards the turnaround or restructuring of our steel and mining businesses to make them more sustainable,” he said.

The implementation of the recapitalisation was subject to a number of conditions.

The Australian government has welcomed Arrium’s announcement, with Industry, Innovation and Science Minister Christopher Pyne acknowledging the importance of the company to 1 700 workers in South Australia.

“This announcement demonstrates a strong commitment by Arrium to its ongoing viability, following its recent strategic review. However, this does not fully resolve the issues that Arrium is facing. The company still has work to do to finalise its recapitalisation and then ensure the Whyalla steelworks maintains its competitiveness,” he commented in a statement.

The company was considering mothballing its steelworks in Whyalla if it could not turn its financial situation around.

Pyne stated that Arrium had to make an additional A$60-million in savings at the Whyalla steelworks to reach a cash breakeven point. 

The Minister added that the government had implemented policy reforms to strengthen the competitiveness of Australia’s steel industry, including repealing the carbon tax and providing a 100% exemption from the renewable-energy target.

To further assist the steel industry, the Anti Dumping Commission had been asked to undertake an economic analysis of Asian steel and aluminium markets and the impact on the global and Australian markets.