NZ Steel, iron sands mines on notice as Bluescope reviews steelmaking in NZ

Monday 24th August 2015

Australian steel products group Bluescope is to review its steelmaking operations in both Australia and New Zealand, saying it needs "game-changing" savings in operating costs or it may stop making making hot rolled coil and billets and import it instead.

"The company is also reviewing the ongoing viability of steelmaking in Australia and New Zealand and comparing the existing business model with an alternative business model of importing quality hot rolled coil and billet substrate," Bluescope said in a statement to the ASX today. "We need to fundamentally address our competitiveness to sustain to a business that justifies reinvestment."

The review affects New Zealand's only steel mill, at Glenbrook, south of Auckland, but apparently not for Pacific Steel, acquired by Bluescope from Fletcher Building in 2014.

Also under review are Bluescope's two iron sands export operations on the Waikato coast, at Waikato North Head and Taharoa, which supply iron ore for local production and export and lost A$31 million before interest and tax in the last financial year.

If the global price for iron were to remain around US$50 per tonne, cash outflows from iron sands mining could total A$20 million between the current and the 2017/18 financial year, the company warned. That assumes breakeven mining costs could be brought from the "mid US$60s per tonne" to the mid-US$50s per tonne in the current financial year.

"More than A$50 million in permanent savings in our NZ steelmaking activities" are being sought, Bluescope said in its earnings statement to the ASX, which showed underlying group net profit after tax up 9 percent in the year to June 30, at A$134.1 million.

The underlying aim is to "deliver value from Australian and New Zealand steelmaking and irons sands through game-changing cost reductions or pursue alternative models."

Sales revenue for the year to June 30 in the New Zealand and Pacific Steel segment rose 12 percent to A$972.1 million, but that was largely thanks to the addition of A$262.3 million of sales of 'long products' steel made by Pacific Steel.

Reported earnings before interest and tax from New Zealand operations sank into the red to a loss of A$30.3 million from a A$73.6 million profit the previous year. That included an A$11 million accounting entry reflecting the reduced value of iron sands inventories.

The Pacific Steel acquisition remained "a valuable domestic business", the company said.

The Bluescope accounts also recognise $44 million in tax losses available to New Zealand Steel to offset against future income, but no further such losses will accrue "until a return to taxable profits can be demonstrated."

Since balance date, the New Zealand unit has concluded the sale of its 28 percent shareholding in the McDonald's Lime company and will receive $41 million in cash before final adjustments and declare a $36 million pretax profit on the sale to Canadian multi-national lime supplier Graymont, which was approved on July 1 by the Overseas Investment Office.

BusinessDesk.co.nz

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