Iron ore producer and steel maker Arrium Ltd (ASX: ARI) – formally OneSteel – today reported a huge loss for the year ended 30 June 2015, following sharp falls in the market price of iron ore.
Plunging iron ore prices have wreaked havoc with the bottom line (profit) of many smaller iron ore miners and were again the catalyst for Arrium's poor results.
Thanks to an enormous $1.8 billion accounting cost for impairments and restructuring, Arrium swang to a statutory loss of $1.9 billion, from a profit of $205 million last year. This came despite revenues being down 13% at $6.08 billion.
Unsurprisingly, no dividend was declared.
The company's Mining Consumables division, which produces various products (grinding media, steel wire, etc.) for resources companies, was the strongest performing business unit, producing an earnings before interest and tax (EBIT) result of $159.9 million – up 14% year over year.
The iron ore mining business, as noted above, took a huge toll on the business, swinging to a divisional loss of $97 million, down from a $481 million profit last year. The business, which has a breakeven price of $US47 per tonne, sold its product for an average price of just $US72 per tonne – down from $US123 per tonne a year earlier.
Iron ore currently fetches $US56 per tonne.
Arrium's Steel business once again saw losses, reporting a negative result of $33.2 million – a $19.6 million improvement on last year.
Should you buy Arrium shares?
Unfortunately, Arrium is struggling to continue as an investment-worthy business. While there may be value in parts of the company (perhaps in the Recycling and certainly the Consumables division), long-term investors will probably do well to avoid Arrium shares for the foreseeable future.
The company says it'll benefit from a restructuring of the Mining business in the coming financial year, and volume growth within the Consumables business.
However, as the group notes in its outlook statement from today's results: "External factors such as iron ore pricing, South East Asian Steel prices and margins and movements in FX are expected to continue to be key influencers of earnings."
While these factors could provide tailwinds for the business in the future, Arrium has no control over these crucial factors over its ultimate success.
Buyer beware.
