A change of name and focus hasn't helped Arrium Limited (ASX: ARI) – ex-OneSteel, generate a profit for the six months to December 2012. Once a pure play steel company, Arrium has recently branched out into mining iron ore.
The company posted a massive $447 million loss for the first half of the 2013 financial year, significantly worse than the $74 million loss reported the previous year. Much of that can be attributed to a write down the value of its intangible assets by $474 million, which included the ARC brand name portfolio and goodwill in the Manufacturing and Distribution segments.
Excluding the writedown, underlying profit came in at $51 million, lower than the $77 million underlying profit reported the previous year.
Iron ore no panacea
Lower iron ore prices also had a $75 million to $85 million impact on net profit in the mining division, compared to the previous year, which also had the benefit of a 9% increase in sales volumes to 3.4 million tonnes.
Total iron ore sales for this financial year are expected to be between 8 and 9 million tonnes, and production will expand to around 12 million tonnes per annum by July/August 2013. That should see Arrium become Australia's fourth largest iron ore miner, behind Rio Tinto Limited (ASX: RIO), BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG).
With iron ore prices currently around US$150 a tonne and increased sales volumes, Arrium should generate a much better result from its mining division in the second half.
Steel still an issue
Despite the positive steel outlook from Arrium's competitor, BlueScope Steel Limited (ASX: BSL) yesterday, Arrium sees a difficult environment ahead, with the strong Australian dollar, and weak construction and manufacturing markets continuing to challenge its Steel and Recycling businesses.
With more than $2 billion of debt and much more work to do to turn around some of its divisions, Arrium remains a work in progress, and we are happy to sit on the sidelines and watch it play out.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP.
