The administrator appointed by the South Australian Government to sort out the Whyalla steelworks mess has held its first meeting with creditors. On March 4, insolvency firm KordaMentha told the meeting the steelworks had been losing $1.5 million a day before being put into voluntary administration and now owes creditors $1.3 billion. This includes $567 million owed to entities belonging to British industrialist, Sanjeev Gupta. Mr Gupta and his family privately own GFG Alliance, the parent company of OneSteel Manufacturing, which in turn owns and operates the Whyalla steelworks. Sebastian Hams, a partner at KordaMentha, said the financial state of the steelworks was “a lot worse than what we thought we would find”. Specifically, when the steelworks plunged into administration on February 19, it owed $189.7 million in employee entitlements; $40.5 million to the South Australian state government; and $281.5 million to other secured creditors. Unsecured creditors are owed $837 million. KordaMentha partner, Lara Wiggins, told the meeting the $567 million claimed by entities within GFG Alliance were being treated as disputed. She said they included an inter-company loan to a related company, Tahmoor Coal.

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There is also a $144 million claim from a related entity for what Ms Wiggins referred to as “alleged pre-paid sales” which would be tested as the administration progressed. Neither Mr Gupta nor any directors of OneSteel Manufacturing attended the meeting.

Addressing the creditors meeting, Mr Hams noted that OneSteel Manufacturing had been selling billet at very low prices to one of Mr Gupta´s Australian companies, InfraBuild. He later said in an interview: “It is really important to acknowledge that there´s some agreements in place here with various related parties that means this business is hard wired to make losses.” The South Australian Premier, Peter Malinauskas, said: “It was very clear there were a whole range of intercompany loans that were going on in GFG.”

Mr Hams said when the administrator took over the steelworks there was “a distinct and critical lack of stock”, including just three days´ supply of coking coal for the blast furnace. He said the company had just $8 million in the bank which was not enough to make payroll. “For a business that turns over more than $1 billion, that is just crazy,” he said. Ms Wiggins said OneSteel Manufacturing had posted a pre-tax loss of $319.1 million in the seven months to the end of January. Premier Malinauskas said BlueScope Steel has been hired as a technical adviser to the plant. Its initial focus will be on assessing the blast furnace´s operation.

Sanjeev Gupta took over ownership of the Whyalla steelworks in 2017 amid much fanfare and promises to spend $1 billion upgrading the operations. He has since emphatically repeated his commitment to the future of the steelworks and especially to the production of green steel. However, Mr Hams from KordaMentha told the meeting the capital expenditure by OneSteel Manufacturing had been of no material value. “They just haven’t spent money on this business by virtue of the cash flow shortages. And I think the expression that we´ve used is….the business is running on empty,” he said. The fall-out from Whyalla´s situation will be felt throughout the Australian steel industry, but nowhere more keenly than at InfraBuild, the main customer of the steelworks, taking about 800,000 tonnes of steel per year. InfraBuild is also a key supplier of raw materials to the steelworks. With so little cash available at Whyalla and with InfraBuild´s claims as a creditor yet to be tested, it is reasonable to wonder how InfraBuild´s ongoing business may fare. The company is already trading with a credit rating in junk territory and its bonds recently priced at a one-in-five chance of default in the near term. There are now concerns that InfraBuild may struggle to find the funds to pay the next tranche of interest on its US$550 million of bonds.

When the Whyalla steelworks went into administration the federal and South Australian state governments immediately announced a $2.4 billion rescue package. An initial $100 million is currently being used to pay employees and contractors, and to make some minor infrastructure upgrades. A further $384 million has been earmarked to fund the plant´s operations during administration as a buyer is sought. However, who is likely to buy it? Late last year, The Monthly magazine spoke with Shane Karger, the local organiser for the Australian Workers’ Union, the biggest union at the plant, representing the majority of the workers. Karger was intimately involved in the last rescue in 2016–17, after Arrium collapsed under the weight of its debts. “It’s easy to point the finger at GFG,” Karger told The Monthly, “but it was perfectly clear that under-investment was happening long before Arrium went into administration. Gupta picked up an asset that was used and abused long ago.” As an ex-steelworker, he didn´t pull any punches in assessing the viability of the almost 85-year old steelworks. “It’s a complete shitshow at this point in time, I don’t think anyone’s denying that. But take GFG out of the driver’s seat and it still leaves us with a busted-arse plant and a million-dollar-a-day loss. If anyone can convince me the next driver will be prepared to lose money hand over fist to maintain and improve the steelworks, then spend $5 billion over the next five to six years on future green-steel technology, okay, I’m in. Give me a better option, I’ll take it,” Karger said.

So, is there a domestic or international buyer out there with the belief that Whyalla (at the right purchase price) can be an ongoing and profitable business? And how much will the state and federal governments have to spend upgrading Whyalla to turn it into an attractive purchase? Or is steelmaking in Whyalla facing an uphill battle, as did car manufacturing in South Australia?

Finally, on our companion website AustralianSteel.com you´ll find a special product feature on Scrap Metal. This is the first of many special features we´ll be publishing this year on various topics, the next one being Steel Fabricators. Go check it out.