Bluescope halves net value of NZ steel assets in A$350m writedown

Bluescope added the Pacific Steel operation to its New Zealand operations in 2014 and last year described them as a "valuable domestic business." Photo / Getty Images

Australian steel maker Bluescope is to make a A$350 million write down on the value of its New Zealand Steel and Pacific Steel businesses, more than halving the net value of its kiwi assets as part of a A$570 million write down across its Australasian portfolio.

In a bare bones announcement to the ASX this morning ahead of a Feb. 22 trading results announcement for the half year to Dec. 30, Bluescope said the write downs followed "the review of external steel and iron ore price forecasts and discount rates in light of macroeconmic and global steel market changes."

The global steel market is over-supplied and prices have collapsed in the last five years. The net carrying value of Bluescope's New Zealand segment assets was A$634.8 million, according to the 2015 Bluescope annual report.

The company gave no detail of how the write down is apportioned, but the NZ Steel operation includes rights to mine onshore ironsand deposits at Taharoa and an associated export shipping operation, as well as the Glenbrook steel mill, where the company has been undertaking a cost-savings drive to reduce annual expenses by a targeted NZ$50 million a year. Further detail is expected at the Feb. 22 announcement.

The New Zealand unit announced in October that it had reached a new deal with Glenbrook's unionised workforce to save around NZ$12.5 million from changes to the way the collective contract will reward workers in years when the operation is unprofitable, comprising around half the savings it hoped to make from workforce restructuring.

Bluescope added the Pacific Steel operation to its New Zealand operations in 2014 and last year described them as a "valuable domestic business."

For the year to June 30, earnings before interest and tax from New Zealand operations showed a loss of A$30.3 million from a A$73.6 million profit the previous year. That included an A$11 million accounting entry reflecting the reduced value of ironsands inventories.

The full year Bluescope accounts also recognised NZ$44 million in tax losses available to NZ Steel to offset against future income, but no further such losses will accrue "until a return to taxable profits can be demonstrated," the company said at the time.

Today's announcement includes a A$30 million write down on "carried forward tax assets", as well as a reduction of A$190 million in the carrying value of Bluescope's Australian Steel Products business. On the upside, the company raised the carrying value of its existing 50 percent interest in North Star Bluescope Steel by A$700 million, following a revaluation requirement triggered by taking 100 percent ownership in October.

Bluescope also flagged stronger earnings for the half year to Dec. 31 than previously expected, with preliminary unaudited underlying earnings before interest and tax expected to be around A$230 million, compared with earlier guidance of A$180 million.

The company was not immediately available to comment on the composition of the New Zealand asset write downs.

At its full year annual results briefing last August, the company said it needed "significant cost savings or to pursue an alternative business model" in its New Zealand and Australian operations, with two choices laid out for New Zealand: restructuring to save A$50 million annually in operating costs or moving to importing steel for the New Zealand market, which would see Glenbrook either mothballed or closed.

On Taharoa ironsand mining, it said break-even mining costs of around US$60 per tonne would drop to US$50 per tonne by the second half of the current financial year, but that cash outflows, excluding capital expenditure, were forecast to be A$20 million a year for the next three financial years at an ore price of US$50 per tonne. While initial capex to expand mining to March 2016 had been approved, a decision had yet to be made on further investment of up to A$45 million.

The Bluescope move is similar, but less drastic, than the 2013 write down of the value of the Tiwai Point aluminium smelter from NZ$606.9 million to just NZ$14.8 million.