Arrium’s investor and analyst tour failed to inspire any...

Arrium’s investor and analyst tour failed to inspire any confidence in its Australian manufacturing, recycling and distribution divisions yesterday, with the stock plunging 15.25 per cent to close at a record low of 50¢ on the biggest volume for the year.

The steelmaker, miner and mining consumables company formerly known as OneSteel has been plagued by concerns over its gearing levels, with more than $2.1 billion in debt on its balance sheet.

Pengana Capital fund manager Tim Schroeders said talk of an equity raising was intensifying as iron ore prices were under pressure. “I think you’d probably have to look towards the balance sheet [to explain the share price collapse],” Mr Schroeders said. “It’s obviously been the concern of one?or two people in the market.”

While Arrium has no material refinancing obligations until 2016, analysts have grown circumspect about the risk of it breaching its interest cover to earnings ratio if iron ore prices stay low.

Credit Suisse analyst Michael Slifirski said Arrium would only breach its covenant in calendar 2012 if iron ore prices averaged about $US86 a tonne for the remainder of the year.

However, he said the June 30 2013 rolling 12-month back-looking earnings before interest, tax, depreciation and amortisation (EBITDA) to net interest covenant “is potentially under pressure if current spot iron ore is averaged from 12 months”.

“Modelling this scenario suggests EBITDA interest cover could decline to around 2.9 times, below the indicated 3 to 3.5 times covenant,” Mr Slifirski said.

While there was little new information in the presentation given to analysts yesterday, it failed to spell out a near-term catalyst for reviving the company’s loss-making steel and distribution businesses