NZ Steel puts Taharoa ironsands mining operation on the market
New Zealand Steel's Australian owner, Bluescope, is placing its Taharoa ironsands mining operation on the market after declaring a $A47.1 million loss on an underlying earnings before interest and tax basis for the first half of the current financial year in its Kiwi operations, driven by the falling value of steel and iron ore.
NZ Steel has mined ironsands on beaches south of the Manukau Harbour since 1972 and, in 2008, attempted to sell the operation rights to Hong Kong tycoon Li Ka-shing's Cheung Kong Infrastructure Holdings, only to be knocked back by the Overseas Investment Office. The sands are used at the Glenbrook steel mill, south of Auckland, and for export to Asian steel mills in dedicated ships.
The ironsands are owned by the Maori incorporation, Taharoa C block, which gave mining rights to New Zealand Steel under a 70-year lease. The Taharoa operation was valued at $250 million in the failed 2008 transaction, which was refused on the grounds the ironsands were on "sensitive land" and the sale would not produce "substantial and identifiable benefit."
Bluescope wrote off the whole $A162.7 million carrying value of its Taharoa iron sands fixed assets in its first-half results – essentially declaring as worthless the capital equipment used in the operation, despite some $16 million in capital expenditure upgrades being committed through to March 2016.
Further "growth capex is being reviewed," the company said in presentation slides lodged with the Australian Securities Exchange. Some $A45 million of further capex was flagged last year.
The Taharoa operations are expected to record an ebit loss of between $25-30 million in the current financial year, assuming an ironsands price of $US41 per tonne and an exchange rate of 64USc to the New Zealand dollar, with ebit breakeven calculated at $US46-$47 per tonne in the second half of this financial year.
The cash outflows would be achieved despite ironsands volumes being forecast almost to double to 3194.6 kilotonnes in the current financial year from 1629.7kt a year earlier.
However, the results announcement also makes clear that the rest of the New Zealand operations are on track to achieve the "at least NZ$50 million" in annual savings by the 2017 financial year, which Bluescope set as a target for ensuring the local operation's future.
The company says it achieved $13 million of savings in the first-half, equivalent to the sums cited by the company in an announcement late last year of a new collective agreement with Glenbrook's unionised workforce to restructure pay in line with performance of the plant. It expects to achieve savings of between $20-25 million in the second half, for full-year savings of between $33-38 million.
Savings of at least $50 million are expected in the 2017 financial year.
The group-wide result included total impairment charges of $A567.5 million, the lion's share of which came from the New Zealand assets writedown. New Zealand was the only one of the company's six divisions to declare an ebit loss. Other divisions include Australian steel products, building products in South East Asia, India and North America, hot rolled products in North America and Bluecope Buildings, which also has North American holdings.
Group net profit after tax for the six months was up 116% to $A200.1 million on the same period a year earlier, including the impairment charges. Underlying group ebit for the half-year, at $A119 million, was 47% up on the same half a year earlier, while underlying ebit at $A230.1 million was a 35% improvement. An interim dividend of 3Ac per share, fully franked for Australian shareholders, was declared.
In New Zealand, "lower realised ironsands and steel pricing (were) partially mitigated by a weaker New Zealand dollar," the company said. It experienced "consistent domestic flat products volume with gains in the residential building market offset by material reductions in manufacturing and agricultural markets."
Total revenues from New Zealand operations in the half year were $A451.5 million, compared with $A489.9 million in the same period a year earlier. Total steel dispatches fell from 387,000 tonnes to 365,800 tonnes, while underlying ebit fell from $A2.6 million positive earnings to a loss of $A47.1 million.
The impact of the asset writedowns shows that net operating assets have almost halved in value from $A683.6 million to $A365.1 million between the two comparable periods.