Arrium Ltd (ASX: ARI), formerly known as OneSteel, is a $2.13 billion iron ore and steel producer that operates three business divisions, mining, mining consumables (producing grinding media, wire ropes and rail wheels), and OneSteel Steel and Recycling.
FY 2013 results
The mining business saw an increase in revenue due to iron ore production increases, although it started FY 2013 with low iron ore prices, the same prices that were putting cash flow pressure on Fortescue Metals Group Limited (ASX: FMG).
By early calendar year 2013, prices were up well above $100/tonne, and complemented the 31.6% increase in sales volumes from 6.29 million tonnes to 8.28 million tonnes. In total, division revenue was up 19% to $977 million.
Mining consumables revenue was $1.56 billion, up 2%, yet could have been more except for lower sales prices. Where it saw the weakest business was in steel manufacturing. The very high Aussie dollar, above parity with the US$, hurt sales because of weakened price competitiveness.
Domestically, the mining sector downturn meant less demand for its products, though infrastructure projects kept up demand for steel reinforcing products.
Overall, operating expenses, which included some $823 million in write-downs for goodwill impairment, turned the year's $168 million underlying profit into a net loss after tax of $695 million.
Improving conditions
In the year, it was able to double iron ore sales to 12 million tonnes, in addition to doubling its capacity at Port Whyalla to 13 million tonnes. Now that the Aussie dollar has weakened to about $0.87 to the US$, its price competitiveness has improved as well, which will aid sales and eventual earnings.
The company streamlined its steel business by selling non-integrated properties. Its sheet and coil distribution businesses will be sold to BlueScope Steel Limited (ASX: BSL) for the inventory value (around $23 million in September), and its OneSteel Aluminium business will be sold to Capral Limited (ASX: CAA) for about $19 million.
Foolish takeaway
The company is transitioning itself to improve its performance and balance sheet strength. The stock market has taken to that, shown by the 108% rise in its share price to $1.57 since 1 July 2013.
The combination of being an iron ore miner and steel maker is a great advantage because it has its own supplies for production, and when the iron ore prices improve, it can benefit from the rise rather than just be hit with a higher production input cost. It has improved operating cashflows and has been able to pay down debt to manageable gearing levels.
