The Whyalla steelworks was “running on empty” and left in a “dangerous” financial position by its former owner, according to a scathing assessment of the South Australian project by the administrators.
It was also losing $1.5m a day, running low of critical steelmaking materials and owed creditors more than $1.3bn, those at the first creditors meeting heard on Monday.
The steelworks was put into administration last month after the SA government, which is also a creditor, lost confidence in the entity operating the steelworks, headed by the UK billionaire Sanjeev Gupta.
Accounts from that entity, OneSteel Manufacturing (OSM), show the company lost $319m in the seven months to the end of January, equating to a pre-tax loss of $1.5m a day.
Sebastian Hams, from the administrator KordaMentha, said there was just three days’ worth of the crucial steelmaking material, coking coal, at the facility upon his appointment. He said minimal repairs, maintenance and capital works had been done at the steelworks over an extended period.
“The business is running on empty,” Hams told employees and creditors at the meeting in Whyalla, a port city located north-west of Adelaide. “It is a really dangerous position to get into.
“We had $8m in the bank – for a business that turns over somewhere around over $1bn, that is just crazy. And the working capital position, by virtue of the creditor arrears, was really quite scary.”
Gupta took over the project in 2017 and made promises to invest heavily in what is one of only two major integrated steel projects in Australia and the only local manufacturer of rail.
But his leveraged portfolio of global steelmaking assets has been under huge financial stress leading to a series of closures and disruptions at operations across Europe and the US.
Problems with Whyalla’s blast furnace, which is central to steelmaking, exacerbated the problems at his Australian operations.
While Gupta has lost control of the steelworks and accompanying mine, he has retained ownership of the port operations, potentially complicating the administration process.
Entities linked to Gupta’s GFG Alliance have claimed creditor debts of $536m, which KordaMentha is yet to assess.
Hams said the lack of investment by the former owner was so extreme that even the traffic lights leading to the steelworks were not working.
“The steel works and the mines were really relying on the resilience and personal capital of employees and subcontractors to keep operations running in seriously and really challenging circumstances,” he said.
The project supports about 4,000 direct and indirect jobs, according to the administrators. The state and federal governments have provided a support package to ensure that the steelworks keep operating and workers are paid while administrators look for a new owner.
GFG’s representatives, who did not attend the meeting on Monday, said they were pursuing financing options when administrators were appointed.
“Our major suppliers across OSM were aware of the capital raising processes, which were delayed and impacted by heightened media speculation,” they said. “Unfortunately, the financing could not be completed before the administration.
“While we are saddened by the decision of the South Australian government, we continue to believe in the strategic importance of Whyalla, and will fully support a viable long term solution for the future of the Whyalla steelworks.”
The Guardian has contacted GFG for comment.
