I did warn that any Arrium rescue must be kept away from the Australian Treasury because its dirt fixation meant it would completely miss the point. And voila:
Federal Liberal Member for Grey Rowan Ramsey says Prime Minister Malcolm Turnbull’s $49m commitment to the Whyalla steelworks is “fantastic”.
”It is fantastic news because it means they can get on with the job straight away,” he said.
Mr Ramsey spoke after Mr Turnbull pledged on Sunday to ensure the steelworks is not only kept open, but actually is brought to a new level of efficiency.
The loan will be used to buy new machinery to be used at iron-ore mines., It will ultimately boost revenue.
It falls short of Labor leader Bill Shorten’s promise to provide $100 million loans and assistance, but is being promoted as a more practical solution.
“The Prime Minister has committed to the funding of an expansion of iron ore beneficiation capacity in the local mines,” Mr Ramsey said.
“The company’s administrator, Mark Mentha, has identified this project as providing the ‘biggest bang for the buck’ by boosting profitability as soon as the first half of next year.
“Importantly, it has the backing of the government’s independent adviser, Russell Camplin, and will bring low concentration, low-cost stockpiles to a high-value marketable material and reduce input costs to the steel plant.
Except it won’t because the iron ore price will keep falling. ARI’s iron ore mines are hopelessly uncompetitive:
It’s not clear how much the $50m will add to the savings but let’s give it the benefit of the doubt and say it brings the price per tonne down to $40 cash cost. That’s roughly where AGO is now, which will not survive:
In fact, over the next five years, nobody above Ferrexpo will survive without handouts. ARI is one of a clique of juniors that currently form the marginal cost producer in the global iron ore market. Anyone with the slightest understanding of commodity economics knows that in the circumstances of oversupply, any cost reductions at the marginal cost will simply be recycled to customers as cheaper prices.
This is made even more ridiculous by the following:
$60m is all that’s required to get the mill profitable at prices much lower than today though admittedly a larger overhaul will be needed longer term.
There is no future for ARI in dirt but there is one in steel if you can for a moment look past the bananas.
We can at least draw comfort from the fact that Turnbull only hosed away $50m this time versus his $40bn submarine shocker.
