Arrium Said to Work With Lazard on Consumables Unit Interest

Updated on

Arrium Ltd., the Australian iron ore and steel producer, is working with Lazard Ltd. as it studies approaches it received for its mining consumables operations, people with knowledge of the matter said.

Trade buyers and private-equity firms have expressed interest in part or all of the unit since the Sydney-based company said last month it was weighing asset sales, the people said, asking not to be identified as the details are private. The business, which makes grinding and crushing equipment used in mining and processing, may fetch about A$1.5 billion ($1.1 billion), one of the people said.

Arrium, which has a market value of A$397 million, said last month it was exploring options for asset sales and that the mining consumables business was performing well on strong volume growth in North America and South America. In January it wrote down the value of its assets by A$1.3 billion, shuttered iron ore mines and cut jobs in response to tumbling prices for the steelmaking material.

Lazard is helping the company study a number of options to reduce borrowing levels, and no decision has been made on asset sales or other steps, the people said. Arrium, led by Chief Executive Officer Andrew Roberts, said June 15 it expects to have A$1.75 billion to A$1.85 billion of net debt at the end of that month.

Largest Holder

Arrium isn’t under pressure to sell the business and shouldn’t part with it unless it receives an attractive offer, Richard Whiteoak, a Sydney-based analyst at Allan Gray Australia Pty, said by phone Thursday. The fund manager is Arrium’s largest investor with a 15.6 percent stake, according to data compiled by Bloomberg.

“The mining consumables business is a solid business with stable earnings,” Whiteoak said. “We think that it’s an important asset, and that it will see them through the tough period while the steel business is recovering and they work through their issues in iron ore mining.”

Arrium is the worst performer on the S&P/ASX 200 Index over the past 12 months, falling 81 percent, while the benchmark gauge rose 2.7 percent over the period. Its shares gained 3.8 percent Thursday to close at 13.5 Australian cents.

In 2012, the company rejected a takeover offer from Posco and Noble Group Ltd. for more than six times that price per share.

Debt Reduction

While the review will help Arrium determine the best option for reducing debt, the company doesn’t have a preferred option at this stage, spokeswoman Gillian Burrows said by phone.

“All options are on the table and we will update the market when the review is complete,” Burrows said. Richard Creswell, a London-based spokesman for Lazard, declined to comment.

Arrium bought the Moly-Cop and AltaSteel units, which became its mining consumables business, from Anglo American Plc in 2010 for $932 million. The division accounted for 20 percent of the Australian company’s earnings before interest, taxes depreciation and amortization in the year through June 2014, data compiled by Bloomberg show.

Moly-Cop, which has has locations in Chile, Peru, Mexico, North America and Indonesia, makes grinding media used in copper, gold and iron ore mines. AltaSteel, based in Canada, produces feedstock for grinding ball plants, according to Arrium’s website.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE