Embattled South African steel producer Evraz Highveld Steel & Vanadium reports that it has received a number of nonbinding expressions of interest from potential investors and that “several” preferred bidders have been identified to participate in a more detailed bidding phase, which is designed to culminate in the receipt of binding offers by August 21.

Business rescue practitioner Piers Marsden told Engineering News in an interview that the need for a strategic investor had been identified early on in the business-rescue process, which officially began on April 13.

He said that the current focus was on ensuring that the company had sufficient cash flow to sustain itself to the point where a transaction could be concluded, while simultaneously putting in place a credible operational turnaround plan to improve the long-term investment case.

However, it had also secured a R150-million facility from the State-owned Industrial Development Corporation to further safeguard its immediate liquidity, with potential for a further R100-million should conditions change. Marsden said it was “not even close” to having drawn down the R150-million in funding already approved.

CEO Johan Burger said the recent decision to curtail mining and steelmaking operations, as well as initiate a process that could result in 1 089 of its 2 240 employees being retrenched, had been prompted by a deterioration in market conditions, compounded by a strong rise in “subsidised” Chinese steel imports.

Prior to the curtailment of operations, the company had reduced fixed costs by more than 30%. “The problem, at the moment, is that it’s not enough,” Burger said, adding that Chinese imports had climbed to “unprecedented” levels in the first quarter, rising by 40% year-on-year in certain steel categories.

“So, despite successful cost savings, we are still unable to compete with subsidised Chinese imports. That has left us no option but to go into a reduced operating mode, where we are, in fact, not going to produce anything, but rather sit out the storm and wait for markets to improve and prices to increase,” Burger outlined.

Production would continue for between two and four weeks at the eMalahleni plant’s two rolling mills, which were converting inventories of billet and slab into section and plate.

The rest of the workers were either involved in training, maintenance or clean-up activities in anticipation of a resumption of operations. However, it was possible that employees could be placed on paid leave should there be insufficient work to perform.

The increase in Chinese steel exports came amid falling demand as growth in the giant Asian economy slowed and changed in composition from investment to consumption. It had also precipitated antidumping actions in the US, India and the European Union.

Evraz Highveld had itself already applied for 10% tariff protection on structural-steel sections, but was contemplating a further antidumping application, which could be submitted to the International Trade Administration Commission of South Africa (Itac) in the coming weeks.

Its larger rival, ArcelorMittal South Africa, had also made applications to Itac for tariff protection, which currently stood at zero.

The Department of Trade and Industry had indicated that it was sympathetic to the plight of the industry and would support increased protection, while an expert panel was currently deliberating on various domestic pricing trade-offs that could arise should protection increase.

Both Marsden and Burger indicated that tariff protection and further government support were likely to prove crucial in Evraz Highveld’s bid to secure a strategic investor.

“We would like to be able to square away our strategic investor and get to the point where we have published a business-rescue plan for the coming three years. But, clearly, our ability to secure an investor will hinge on our ability to get government support, so we would hope to have some confirmation in the next two months of the Itac application, as well as additional support,” Marsden said.

The group had also initiated discussion with the Department of Environmental Affairs and the Department of Water and Sanitation on its environmental liabilities, which some observers believe remain a key impediment to a potential transaction.

“The environmental liabilities disclosed on the company’s balance sheet are really ‘close-down’ liabilities. But, on the basis of being a going concern, we believe . . . we can put a remedial action plan in place to ensure the company meets its obligations from an environmental perspective.”