Australia's OneSteel ramps up iron-ore, eyes new name
Wednesday, 22 February 2012 | 00:00
OneSteel, Australia's second-largest steelmaker, posted an underlying first-half profit ahead of forecasts, lifting its shares 9%, and outlined plans to change its name to reflect its growing mining business and attract new investors.
Managing Director Geoff Plummer said the Peculiar Knob mine in South Australia was due to make its first sales of iron-ore in late 2012, and should take total sales to 11-million tonnes in 2013, nearly double current production.
Based on that projection, OneSteel would rank as Australia's fourth-largest iron-ore miner behind Rio Tinto , BHP Billiton and Fortescue Metals Group .
"By any measure, 11-million tons, that makes us a pretty significant iron ore player," Plummer told reporters.
OneSteel's mainstay steel manufacturing and distribution business has been hard hit by a downturn in Australia's construction and engineering sectors, pushing its steel manufacturing business to another loss for the half.
The company is on target for iron ore sales of six-million tons in the current financial year and is working to double port capacity at Whyalla to handle the production from Peculiar Knob.
Capital spending to find more iron-ore in Australia -- already the world's top supplier -- rose 27% in the last fiscal year and topped the list of exploration spending in Australia, according to government figures.
Plummer said the name OneSteel was a "significant constraint" now that about 40% of revenues came from mining and mining consumables.
"The investor base is far narrower than it needs to be or it should be," Plummer said. Steel now accounts for only 47% of the company's assets, down from 92% five years ago.
OneSteel said in the near term for the mining business, demand from China was expected to remain strong which would underpin high prices compared to historical levels.
Iron ore currently sells for around $135 a ton to China , the world's top buyer, fuelled by mass urbanisation, and only costs about $20 to $30 a tonne to mine in Australia.
Australia alone provides almost half of China's iron ore imports.
OneSteel shares opened up 8.9% at A$0.795, but are down from highs above A$2 a year ago as the domestic steel industry has faltered and iron ore prices fell.
AHEAD OF FORECASTS
OneSteel said its underlying net profit was A$78-million ($84-million) for the first half to Dec. 31.
That compared with market forecasts of a profit before one-off charges of A$63.5 million, according to a Reuters survey of four analysts.
The forecasts are before a previously announced A$130-million writedown for the LiteSteel business.
Including the writedowns, OneSteel posted a net loss of A$74-million, down from a net profit of A$116-million a year ago.
OneSteel expected a significant improvement in its steel business performance in the second half, mainly due to cost-cutting and efficiency improvements, after an underlying loss of A$75-million in the first half.
Plummer said domestic steel demand remained well below pre-financial crisis levels, particularly in construction.
He said there were no signs of improvement of "substance" and the only increase in activity was in resources and government-funded civil works.
"The signs of improvement are tentative and geographically isolated. We would still say we are at the bottom (of the cycle)," Plummer said.
In the second half, the manufacturing business was expected to return to underlying profit, excluding the impact of government handouts to the steel industry, he said.
Plummer dismmised market speculation of a merger of the steel distribution business with that of larger rival BlueScope Steel, saying it could lead to loss of market share.