Struggling steel and mining consumables manufacturer Arrium has struck a more than billion-dollar recapitalisation deal with American private equity firm Blackstone, in a move it hopes will help it manage its growing debt pile “in a low iron ore price environment”.
The South Australian steel business announced on Monday it had secured a deal whereby Blackstone subsidiary GSO Capital Partners will provide it with up to A$1.28bn in funding.
Arrium is looking to continue operation of its profitable mining consumables business, and is also looking at ways to improve operations at its Whyalla steelworks, which contributed to a cash loss of $230m in the first half of the financial year, announced last week.
The loss added to Arrium’s significant debt pile, which currently sits at a little more than $2bn.
The BHP Billiton spin-off had hoped the sale of its mining consumables arm could help fix its debt situation, but reports the potential buyers had discussed a price tag of just $1.1bn poured some cold water on that theory earlier this month.
Arrium said the new loan deal would allow it to significantly reduce its debt, subsequently allowing it “to retain its world-class Mining Consumables business which continues to perform well”.
The funding will also go towards “turning around or restructuring its steel and mining businesses to make the more sustainable,” the company added.
In addition to the announced loan, Arrium said it will also seek to obtain a $500m working capital loan.
The company’s chairman, Jerry Maycock, reflected on a tough period for the embattled mining and manufacturing business.
“The last eighteen months has been an extremely challenging time for the company, and the Board acknowledges the loss of shareholder value during this period,” Maycock said.
“The fundamental priority now is to create a sustainable capital structure.
“The recapitalisation plan is the best option currently available to the company.”
Managing director and chief executive Andrew Roberts also welcomed the deal.
“Today’s announcement provides confidence that with the recapitalisation plan we will have the balance sheet strength and business portfolio to underpin the long term future of the company,” he concluded.