Arrium shares have rocketed higher despite the diversified iron ore and steel business making a $695 million full year loss.
Arrium’s 2012/13 financial year loss was caused by $961 million in impairment charges and restructuring costs, and compared to a $58 million profit in the previous year.
Underlying net profit, which excludes restructure costs, was $168 million in the year to June 30, down from $195 million in the previous year but ahead of analyst expectations.
Managing director Andrew Roberts said the company, which changed its name from OneSteel in 2012, had grown its mining and materials business and was improving cash flow from its steel operations.
“We have delivered on our growth expectations to date, and are now focused on reducing debt through capturing the benefits of this growth, as well as from improvement in earnings and cash generation in Steel,” he said.
Investors applauded Arrium’s upbeat outlook for its iron ore mining and mining products divisions, sending shares up 16.5 cents, or 16.8 per cent, to a six month high of $1.15.
Mr Roberts said the lower Australian dollar and continuing Chinese growth would support iron ore demand, and its earnings are expected to benefit from expanded production.
In mining products, Arrium said increased copper and gold production in North and South America would lift demand by eight per cent a year over the next four years.
JP Morgan analyst Jason Steed said that outlook had beaten expectations and improved investor sentiment.
“The numbers were slightly better and the outlook commentary was slightly better,” Mr Steed said.
However the share price gains had only taken Arrium back to slightly above where it was a week earlier.
The fall in Arrium’s underlying profit was due to a fall in iron ore prices, which outweighed the benefits of increased sales.
Earnings from its mining products and steel businesses each grew by 15 per cent.
Arrium said it would sell non-integrated steel businesses and properties as it moves to focus on cash generation in its steel operation, while growing the mining and products divisions.
Steel demand is expected to remain flat in the first half of the 2013/14 financial year, but domestic construction should recover slowly during the year, the company said.
“Earnings in FY14 for steel and recycling are expected to benefit from further cost reductions and operational improvements, as well as from the impact of a sustained lower Australian dollar,” Arrium said in a statement.