We always knew this was coming, didn't we?
Back in 2012, Motley Fool analyst Mike King wrote, "Now is not the time to be buying OneSteel shares, and there may never be a good time to do so."
Then again in 2013 – following a name change from OneSteel to Arrium Ltd (ASX: ARI) – I reminded readers that it had, "a tough road ahead".
Today's $1.5 billion loss says it all. Oversupply of iron ore coupled with waning demand from Chinese ports has led to 40% falls in the commodity's price year over year.
For the six months to 31 December 2014, Arrium's revenue dropped 12% to $3.22 billion, whilst a net profit of $220 million a year earlier turned into a loss of $1.49 billion.
No dividend was declared. This is in stark comparison to the six cents per share it paid in the prior period, and three cents per share six months ago.
Perhaps the most breathtaking fall was that of net tangible assets per share, which is simply the amount of assets (as judged by the accountants) the company holds on a per share basis. Net tangible assets, or NTA, fell from $1.34 to just $0.40 per share following $1.35 billion in write-offs.
Excluding the huge write-offs, Arrium's "underlying NPAT" was $22 million.
Arrium's Mining division achieved an average iron ore price of $US68 per tonne, down 46% from $US126 per share in 2014. However it's important to note Arrium's revenue is boosted by a falling Australian dollar. The same cannot be said for its debt.
With an Australian-US dollar exchange rate of 93 cents, Arrium's debt would be $1.23 billion. However at 82 cents, it's $1.43 billion. Currently the Aussie dollar is buying around 78 US cents, with some tipping it'll go lower still.
"External factors, including the sharp and substantial fall in iron ore prices, as well as historic low South East Asian steel margins, made the half a very challenging one," Managing Director and CEO Andrew Roberts said.
"Going forward, we are well positioned for improvement through our increased leverage to a stronger outlook for Steel, our leading market positions and continued strong demand for grinding media, particularly in North and South America, and the re-design of the Mining business," Mr Roberts added in the company's ASX announcement this morning.
Should you sell yours shares and run for the hills?
Despite all of the above, Arrium's shares have traded slightly higher this morning, which could perhaps be a reaction to management's outlook for the remainder of the year. "Arrium Group underlying earnings for the second half are expected to be greater than in the first half due to expected stronger earnings in Mining Consumables and Steel, and from cost reductions, which are weighted to the second half."
However with shares down 86% in past year alone, I still wouldn't buy Arrium.
