LOK (ASX) onesteel plans for the long haul

OneSteel plans for long haul
By Chris Moriarty
January 25, 2004

INVEST in OneSteel, and you're investing in a company that's already planning and thinking about 2024.

Sure, the stock market changes the value of OneSteel up and down every few seconds, but the company's management is focused on solving issues that are 20, 30 or even 50 years down the track.

"We have always traded within a 30 per cent band around what we think we're worth," OneSteel general manager of corporate affairs Mark Gell says.

"To us, that 30 per cent is just the normal volatility of the stock exchange."

Everything is long-term.

"Over a few years, we've moved from 80c to around $1.80 - that's a good result," Gell says.

One long-term issue is the depletion of the iron ore mines near OneSteel's steelworks at Whyalla, in South Australia.

"In 20 years, the iron ore runs out. We're now planning where we'll get the ore from," Gell says.

One solution is to use new technology. Enough ore for a few years lies in the tailings scattered around the 100-year-old mining site.

Another option is to move to a lower-grade ore. There's enough of that to last for 50 years, but it would require new plant and equipment worth hundreds of millions.

It's not all long-term; the short term is still important.

The Alice Springs-Darwin rail line was a big boost to OneSteel, which supplied the tracks.

"A large project for us is 20,000 tonnes of steel," Gell says. "The Darwin rail link required 140,000 tonnes."

What happens now that project has finished?

"Fortunately, the construction market is very strong and world prices are high," Gell says.

Fifty-eight per cent of OneSteel's product is sold to construction companies.

The dollar is another short-term issue. A strong dollar reduces costs because OneSteel buys coal and scrap metal in US currency, but it also means imports are cheaper.

"We're seeing imports increase at competitive prices. That puts a cap on our pricing," Gell says.

And the giant steelworks is still exposed to disasters like the Moomba gas explosion on New Year's Day.

"We use 17 terrajoules of gas a day, but the explosion cut us back to 2.5 terrajoules," Gell says.

It was just enough to keep the blast furnace going.

"You can't turn off a blast furnace. If you do, you end up with a solid lump of steel that you have to jack-hammer out," Gell says.

Heavy industrials like OneSteel are typically safe, reliable, long-term investments.

"We have some short-term investors who try to predict that 30 per cent wobble around a true value in the market," Gell says.

"But we have many long-term investors who want value and steady dividends."

The Sunday Telegraph