In November 2015 we spoke to Andrew Garey, General Manager of New Zealand Steel about the $50 million savings target he and his team at the mill were trying to achieve. However that may not be enough any longer.
Yesterday New Zealand Steel’s Australian owner, Bluescope, placed its Taharoa ironsands mining operation on the market after declaring an A$47.1 million loss 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. The sands are used at the Glenbrook Steel Mill, south of Auckland, and for export
to Asian steel mills in dedicated ships.
Andrew had the following to say about the sale of the ironsands business.
“The Taharoa business has been challenged given the drop in iron ore prices. We have a business that is losing money currently and requires further capital to complete its expansion. Given the likely short term position, we are looking at a sale option to someone who may have the scale and expertise to make Taharoa viable under a different business model.”
The ironsands are owned by the Maori incorporation, Taharoa C Block, which gave mining rights to New Zealand Steel under a 70-year lease.
Bluescope wrote off the whole A$162.7 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.
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 operations’ future.
According to Andrew, New Zealand Steel continues to be under pressure and further savings are being sought.
He comments “We have performed very well to chase the $50m target and will likely exceed our goal in FY17 but steel prices have dropped to lower points than expected and this has meant that further savings are required”.
The company says it achieved NZ$13 million of savings in the firsthalf, 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.
Total revenues from New Zealand operations in the half year were A$451.5 million, compared with A$489.9 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 A$2.6 million positive earnings to a loss of A$47.1 million.
The impact of the asset writedowns shows that net operating assets have almost halved in value from A$683.6 million to A$365.1 million between the two comparable periods.