SA’s largest steel producer ArcelorMittal SA (Amsa) is considering asking shareholders for money while it looks for ways to fix its unbalanced financial structure after a further slump in performance in the third quarter.
Amsa shares took a pummelling on the news, falling almost 19% before closing 15.85% weaker at R1.38 — a world away from the record high of R265 reached in 2008. Once a darling of the SA investment landscape, when electricity prices were a fraction of what they are now, its market cap is just R1.571bn.
In a business update released on Wednesday, Amsa said various possibilities including restructuring — which could mean raising capital or selling assets — were under consideration to finance its investments portfolio and deal with the balance sheet as part of turning the company around.
“To execute on the strategy, various options are being considered to address balance sheet resilience, and funding of these projects, including through potential recapitalisation,” it said.
CEO Kobus Verster told investors in August the group was moving forward with its portfolio of “high-payback” projects, including the installation of a billet caster at its Newcastle plant that would “bring down costs immediately”.
Investing in the projects would result in increased revenue and cash flow due to higher sales volumes, cost reductions, lower net capital expenditure and the advancement of its decarbonisation efforts, he said.
The JSE-listed company reported a loss of R466m before interest, tax, depreciation and amortisation in the three months to end-September, compared to a profit of R52m a year earlier, mainly as a result of its long-steel business, which recorded a R512m loss.
Amsa had in its interim earnings report forecast an improved performance, but said a downturn in domestic and international steel markets in the third quarter, and increased energy and logistics expenses, had offset “substantial cost-cutting interventions”.
The group said it had taken steps to avoid the closure of the longs business as announced in July, but said the viability of the entire company was in jeopardy if the national and market constraints that remained were not resolved urgently. That would put the 3,500 previously rescued jobs at the firm and as many as 80,000 jobs in the value chain back on the line again.
Amsa also asked the government to do away with the export tax on scrap metal, reduce rail and port prices and to enforce existing trade measures.
’The group said electricity tariffs had increased 16% in the second quarter, and has called for a 25% tariff on imports, saying it is the most appropriate measure to protect the embattled domestic industry.
“Despite the company having implemented substantial cost-cutting interventions to ensure its sustainability, as the national and market constraints present a significant hurdle to overcome, the market distortions that contributed to the 2023 decision to wind down the longs business continue to provide an unsustainable and unfair advantage to scrap-based producers,” Amsa said.
Even while the board and management would continue to assess the long-term business’s viability, it appears doubtful the profit patterns that were evident in the third quarter would change substantially for the remainder of this financial year, it said.
While acknowledging government support in recent months, the group said further urgent action was needed.
“Of utmost importance will be the response by the government to the requested urgent interventions on, among other matters, ensuring a level playing field which will allow for the continued operation of the longs business to be assessed,” Amsa said.
Update: October 16 2024
This story has been updated with more information.
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