Arrium to add gold and copper to its business

In his first official speech since taking over as CEO of mining and materials group Arrium (ASX: ARI), Andrew Roberts outlined his company’s priorities as the mining sector continues to falter.

Formerly known as OneSteel, the company once predominantly focused on producing steel. However, recognising the decline in international demand as well as an increase in global supply, the company changed its name to reflect the shift towards heavier iron ore production. Now, Arrium has announced its intentions to add copper and gold production to its business in order to diversify its operations.

Roberts believes that the Australian steel market is now “at the bottom of the cycle”, and expects Arrium to maintain its share of the iron ore market as it works towards selling at least 12 million metric tonnes of the resource per year.

The number one priority for the company however, is to significantly reduce debts, which it will hope to achieve via a complete restructure in its steel division (by combining steelmaking and steel distribution into one unit), as well as through selling various steel assets. Roberts said “our number one priority at Arrium at the moment is reducing debt, which has increased because of recent growth investments in mining and mining consumables.” As of December, the company’s net debt sat at around $2.16 billion.

Earlier in the month, Roberts announced $480 million in asset impairment and restructuring charges, which also related to its steel business, but stood by his convictions that such a move would not result in an equity raising.

Roberts also predicted that with each cent that the Australian dollar depreciates compared to the US currency, Arrium’s revenue would benefit by between $10 million and $12 million. With the currency expected to fall below its current level of around US92c, Arrium’s revenues, like with other miners such as BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO), should receive a much needed boost over the next year or so.

Foolish takeaway

Roberts said that “my responsibility has been to look how we take the company forward. I’ve done that and that’s how we’ve made our decisions.” Although investors ought to avoid the mining industry (for now at least) as demand for resources continues to decline, the diversification Arrium is working towards is certainly pleasing. Yesterday, the company’s shares received a much needed 5.5% boost, and it has continued to climb today with a further 4.25% gain as at the time of writing.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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