The collapse and sale of Arrium
The inquiry's interim report, tabled in December 2016, focused on the
collapse of Arrium and made several recommendations regarding Government
support to ensure the success of the sale of Arrium.
This chapter summarises the key developments set out in the interim
report that led to Arrium being placed in voluntary administration. It provides
an update on the outcome of the sale, and sets out its immediate impact on the Whyalla
Arrium Limited (Arrium) was an international diversified mining and
materials company, consisting of three business segments: Arrium Mining
Consumables (Moly-Cop), Arrium Mining and Arrium Steel (previously OneSteel).
On 7 April 2016, Arrium was placed into voluntary administration.
The purchase of Moly-Cop by the United States-based private equity firm
American Industrial Partners was announced in November 2016 and completed in
GFG Alliance formally acquired Arrium Mining and Arrium Steel on 1 September
2017. Arrium mining was renamed SIMEC Mining and Arrium Steel was renamed
Events leading up to voluntary administration
As outlined in chapter 2, the Australian steel industry is currently facing
difficulties largely brought on by global conditions. The committee heard
evidence from representatives of Arrium suggesting that the collapse of Arrium
Steel was caused, in part, by global conditions, including a global oversupply
Arrium's Chief Executive of Strategy, Ms Naomi James, outlined some of the
conditions that had led to Arrium's financial crisis:
The key challenge in the current external environment is
margin. We have seen steel prices in absolute terms reduce by 60 per cent since
2012 and we have seen steel margins over scrap reduce by 80 per cent. Volume
helps—do not get me wrong, volume helps—but steel pricing globally right now is
The inquiry also heard evidence that a number of other factors may have
impacted Arrium's financial position. Some witnesses expressed their concern
about the expansion of operations into other parts of South Australia, which
they suggested may have contributed to Arrium's financial problems.
Mr Stephen Young, the Managing Director of E&A Ltd, a South
Australian company that owns three businesses in the construction and
engineering industry in Whyalla, stated that:
I am obviously not involved in the management of the
business. I sit outside the business and do not have detailed firsthand
information...Having said that...the decision that was made in different times by
the Arrium board to expand the company's operations in the Middleback Ranges
and then to acquire the Peculiar Knob iron ore facility has, with the benefit
of hindsight, been a mistake. The debt that was incurred in making those acquisitions
is currently not repayable, or would not appear to be repayable, and my
understanding is that those operations have been running on a cash‑flow-negative
It is always easy to be wise with the benefit of hindsight...I
am always somewhat reluctant about criticising businesspeople who try and make
good decisions at the time. They obviously thought that the decision to expand
iron ore would protect the steelmaking business.
Mr Scott Martin, the Whyalla and Eyre Peninsula Branch Organiser for the
Australian Workers' Union, gave evidence that in his opinion:
...the reason the company is in the position they are in has
nothing to do with the carbon tax being in place or being taken out of place.
It is to do with what they did up at Southern Iron—establishing a mine up there
that basically had to collapse as soon as they got the thing up and running.
They spent $600 million of capital expenditure that they had to go to the
market to get. They built that mine and the rail lines, expanded the port and put
ore sheds in out here. Within five minutes of doing that it was gone. That is
what has put the company in this position.
Cost reduction measures
The committee received evidence explaining what cost reduction measures
Arrium had taken in response to the challenges it faced.
Arrium outlined in a submission provided to the committee before it went
into administration that:
...since 2009 we have reduced our total delivered cost of steel
per tonne by 24 per cent after inflation, as well as improving productivity and
reducing margins wherever possible.
Overall, Arrium achieved an annualised cost base reduction of
$40m in 2014–15...Further, Arrium has identified a cost reduction and efficiency
target of $100m for our Whyalla operations for the 2016 financial year. To
date, approximately $100m of this has been identified, and unfortunately has
included approximately 200 job losses, with an additional 50 losses likely from
contractors. The continued deterioration of the market, however, has now
increased the required target to $160m.
Despite these significant efforts, Arrium cannot continue
with the status quo.
Mr David Gabb, an Australian Workers' Union delegate and steelworker,
outlined some of the measures that employees had agreed to in order to ensure
Arrium's survival, and the personal impact of these measures:
We made a sacrifice to save $100 million, and that target,
apparently, has been achieved. We have done that. But then they came back and
said, 'No, we need another $60 million.' That $100 million, by the way, we got
from restructuring wage cuts, shift changes, overtime bans and other
cost-saving measures, so we all hurt to get that. That was only six months ago
that they came out with that, and we did it. We got it. And myself, I suffered
a great financial loss through these changes and, because we now have less
people, I do the work of two people compared to what I used to do.
Arrium placed into voluntary administration
In February 2016, Arrium announced an operating loss of $43 million in
its Whyalla steelworks.
This was followed by the announcement of a recapitalisation plan for Arrium,
including up to $US927 million in funding from United States group GSO Capital
Arrium was placed into voluntary administration on 7 April 2016.
KordaMentha Restructuring were appointed as voluntary administrators of Arrium
and its 93 subsidiaries on 12 April 2016.
During its administration, the company came close to collapsing several
Among the measures the administrator recommended was a 10 per cent pay cut for
employees, which was agreed to in September 2016.
Impact of Arrium's collapse on
The Government of South Australia outlined in its submission some of the
impacts the continuing uncertainty surrounding the future of Arrium had on
Whyalla, including the following:
the rate of closures of small business has escalated with more
than half of the 700 small businesses in Whyalla closed since Arrium entered
there are approximately 800 properties either for sale or vacant
rentals which are adversely impacting house prices and owner options;
apprenticeships have almost stopped and the businesses still
operating remain primarily focused on Arrium; and
sporting clubs are failing due to the inability of the community
to cover fees and costs and the impact of a reduced available population.
Evidence given to the committee indicated that if Arrium were to close,
the town's economy would likely collapse, meaning Whyalla could become a 'ghost
town'. The CEO of a local business, ICE Engineering and Construction, outlined
in further detail what this would mean:
Should the steel industry close, our local branch would cease
to exist here in Whyalla... [T]he current skilled workforce of our business will
be forced to leave the town to look for work. I feel that the skilled employees
in nearly all Whyalla businesses currently dependent on Arrium will do the
same, leaving a town mostly with unskilled people dependent on the government
for an income. We have already witnessed many companies, both larger and
smaller than ICE, go into administration due to the current dire economic
conditions... Unfortunately, the survival of Whyalla and its people is dependent
on the local steel industry, and without it we would soon become the largest
ghost town in the country.
Whyalla's Acting Mayor also noted the social and economic impact that
job losses had had on community and recreational activities:
It is estimated that in recent times Arrium and the
contractors have shed their workforce by more than 900. It is estimated that
this has resulted in a further 800 to 1,000 job losses indirectly. With
significant job losses in the sector, the social and economic impact is being
widely felt in the community, with falling membership of sporting clubs and
community clubs and falling participation in many activities that help to
create the sense of community. There are business closures, stalled investments
and falling school enrolments, and the brightest and best are leaving our
Submitters and witnesses to the inquiry stated that the measures
undertaken by Arrium to ensure its survival had impacted the town's economy.
For example, the branch organiser of the Australian Workers' Union outlined how
these measures had affected the local property market:
The housing properties have dived 20 per cent in recent
times. There are over 600 properties on the market in Whyalla at the moment...
[N]obody wants to buy into a town that does not have a future... Rentals have
dropped, so people cannot rent their houses now... And there are people who have
just invested in housing... who are now contemplating selling it or giving it
back to the bank. We have heard stories of banks reclaiming housing and we have
had houses... in a half-built state that have not been completed because of
people losing their jobs and the downturn in the industry.
Commitments to support Arrium
The South Australian Government, the Australian Government and the
Federal Opposition made a number of commitments to ensure the survival of the
Whyalla steelworks owned by Arrium.
South Australian Government
Prior to Arrium's collapse, the South Australian Government established
a Steel Task Force in November 2015, which aimed to secure the future of
steelmaking in South Australia.
The South Australian Government stated in its submission that it would allocate
the Task Force $2.7 million over four years, and had mandated the use of
Australian standard steel in South Australian government projects.
After Arrium entered voluntary administration, the South Australian
Department of State Development established a Whyalla Response Office for
community and businesses to access financial and other support services.
The South Australian Government also outlined in its submission that in its
2016–17 State Budget it had allocated 'nearly $70 million to support
steelmaking, businesses and the community in Whyalla', including a small
business loan scheme and a foodbank.
The South Australian Government also made a commitment of $50 million for
the future owner of Arrium Whyalla 'for capital investment'.
Media reports indicated that this commitment would include renewable energy
projects and increased access to Arrium's port facility.
Australian Government measures
The Department of Industry, Innovation and Science (Department of
Industry) stated in its submission that the Australian Government had
undertaken a number of measures to support Arrium and its workers. For example,
in March 2016:
...the Prime Minister, the Hon Malcolm Turnbull MP announced
that the Australian Rail Track Corporation would fast track a project to
upgrade 1200 kilometres of rail between Adelaide and Tarcoola in partnership
The government also announced in May 2016 that it would provide
$1.1 million to assist workers who may lose their jobs at Arrium, 'in
addition to a previously announced $270,000 package of measures to support
retrenched Arrium workers.'
The Department of Industry outlined in its submission that in accordance
with a Coalition election promise, the government had provided Arrium with a
$49.2 million loan to purchase beneficiation equipment that would enable
Arrium 'to process iron ore to export quality.'
In April 2016, the Opposition Leader, the Hon. Bill Shorten MP, announced
a Plan for Australian Metals Manufacturing and Jobs, which included six
policies aimed at supporting the Australian steel industry.
The Opposition Leader further announced in June 2016 that a Labor government would
establish a joint Steel Reserve with the South Australian Government to support
Arrium, including $100 million from a Labor Government to support this
In September 2016, the Opposition Leader repeated his commitment to support
Arrium and called on the Government to match the Opposition's commitment.
The sale of Arrium
On 4 November 2016, KordaMentha announced the sale of Moly-Cop to
American Industrial Partners.
The acquisition was completed in January 2017.
On 15 June 2017, KordaMentha announced that a Korean consortium led by
Newlake Alliance Management and JB Asset Management was the preferred bidder
for Arrium, while UK-based Liberty House was short-listed.
However, after financing issues emerged and a deal was not brokered
within the exclusivity period, Liberty House under the umbrella of GFG Alliance
emerged as the preferred bidder.
The sale of Arrium Mining and Arrium Steel was announced in July 2017.
GFG Alliance formally acquired both businesses on 1 September 2017, announcing
that Arrium Mining would be renamed SIMEC Mining and Arrium Steel would be
re-branded as Liberty OneSteel.
Immediate effects of the sale
In the month after the announcement of the purchase of Arrium
by Liberty House, news reports indicated that the Whyalla property market
experienced a 'mini boom'. One local real estate manager reporting double the
average monthly sales from previous months when Arrium's future had been
Local businesses also experienced an upturn in trade.
On 8 September 2017, KordaMentha reported that former Arrium employees
who had been let go had been paid their accrued leave, superannuation and other
entitlements, totalling over $7.1 million.
GFG Alliance's Executive Chairman Sanjeev Gupta outlined in August 2017
that GFG Alliance intended to invest up to US$1 billion in the former Arrium
steelworks and mining division. This would involve modernising the steel plant,
increasing its steel-making capacity and improving its energy generation to
reduce high energy costs, such as generating power through the use of waste
gases and using pumped hydro-electricity. GFG Alliance also indicated that it
was considering investing in solar energy, as part of what it terms its
Media reports in late September 2017 indicated that Mr Gupta had bought
a 50.1 per cent stake in renewable energy company Zen Energy to set up
renewable energy to power Liberty OneSteel's mills.
The committee considers the sale of Arrium to Liberty House to be a
favourable outcome and an important step towards securing the future of the steel
industry as a whole in Australia. While the sale took place privately, the
South Australian and Australian governments had a key role in securing the
future of Arrium and the South Australian steel industry through their
However, the deeper structural issues that led to Arrium's collapse have
not disappeared. High energy prices remain, as do inconsistent standards,
problems in Commonwealth procurement policies, and unfair import competition.
Although pleased with this outcome, the committee is of the opinion that a
similar crisis could arise again, leading to negative impacts on the Australian
and local economies, job losses and the end of a crucial component of Australian
Given that these broader issues have not resolved, the committee has
devoted the remainder of this report to outlining proposed solutions to the
problems still facing the steel industry in Australia. Without timely and
considered action and leadership on the part of governments, the future of the Australian
steel industry remains uncertain.
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