OneSteel Ltd. gained the most in more than two years in Sydney trading as Australia’s second-biggest steelmaker said it’s switching focus to iron ore away from its unprofitable steel unit.
The shares rose 12 percent to close at 82 Australian cents, their biggest gain since April 3, 2009.
OneSteel is considering changing its name as it targets an almost doubling of production from its iron ore unit that accounts for about 40 percent of sales together with its mining consumables business. The company today reported underlying earnings of A$78 million ($84 million), beating its own guidance of as much as A$75 million.
“One Steel’s mining assets may enable the company to turn things around in the future,” Ben Le Brun, a market analyst at Options Xpress said in a note after the result today. “This is definitely moving in the right direction.”
OneSteel swung to a net loss of A$74 million in the six months ended Dec. 31, from profit of A$116 million a year earlier. The steel unit narrowed its loss with earnings before interest and tax of A$75 million in the period amid weak domestic demand, high raw material prices and the stronger Australian dollar. It plans to cut 430 jobs at the unit before June 30, adding to last year’s reduction of 300 employees and 170 contractors.
Mining will account for more than half its assets when iron ore production reaches 11 million metric tons a year at full capacity after June 2013, OneSteel Chief Executive Geoff Plummer said on a call with reporters today. It plans to produce 6 million tons of iron ore this fiscal year.
“The benefit of our growth focus on our mining and mining consumables businesses is clearly evident in our results,” Plummer said in today’s statement. Still, the company has no plans to exit the steel industry.
The company said it is “confident” of its balance sheet position as it has A$1 billion of undrawn facilities and statutory gearing of 33.8 percent. It provided no update on whether a share sale may be necessary which may be helping the shares higher, Le Brun said.