This morning Arrium Ltd (ASX: ARI) announced to the market that it would be closing one of its two South Australian iron ore mining operations and writing off assets to the value of $1,335 billion.
In making the announcement the company said: "The re-design results from the substantial fall in iron ore prices over the last half, as well as increased uncertainty around the timing and extent of any price recovery".
It was only back in early 2012 that Arrium announced its strategy to expand its mining operations and change its name from OneSteel.
The decision to invest in expansion at a time when many smart investors could see iron ore prices were at sky high levels almost certain to be unsustainable was questioned at the time by The Motley Fool's Mike King.
Indeed, in this excellent article written in February 2012 "psychic-Mike" outlines exactly why Arrium was making a big mistake in planning to expand. Mike also outlines why an already heavily indebted company shouldn't have been taking on more risk and why buying shares looked like a one way ticket to Poor Town.
Since early 2012 Arrium has lost more than 80% of its value and today sells for 20 cents leaving anyone who ignored Mike's advice to give the business a wide berth nursing painful losses.
Indeed the executive decision-making teams at Arrium and WHITEHAVEN COAL LIMITED (ASX: WHC) might want to consider signing-up to a part-time MBA course given some of their recent strategic decisions.
Whitehaven's management also deciding on a debt-fuelled expansion strategy perfectly timed to coincide with big price falls for coal – the key commodity it was reliant on selling. The Maules Creek coal mine another expensive monument to some of corporate Australia's muddled thinking.
Why would you invest in price-taking businesses like these when you could buy quality price-making businesses with top-notch management?
