How do you save a doomed manufacturing plant? First you have to make sure that you get carbon tax relief and reasonable help from state and federal governments. But for the most part no Government action can save a doomed plant on its own.
OneSteel managing director Geoff Plummer was the CEO of a doomed plant – the Whyalla steelworks – and it looks like the plant has been saved. In his KGB interview Plummer lets out some of the secrets of this remarkable effort.
Plummer and his team have the Whyalla steelworks in a cash positive situation despite the fact that the Australian dollar is way above parity and domestic demand is depressed.
When it came to the carbon tax, Plummer was pretty blunt with the government and it probably did not hurt having the mother of Labour power broker Gary Gray as a resident.
But on its own that would not have saved Whyalla given what happened to the dollar and trading.
The second step in the saving the plant was the recognition by Plummer and his board that closing the plant would be costly so there was real incentive to save it.
The third step was the fact that work force knew that if the plant closed there would be no jobs in Whyalla. Many would have to sell their houses for what they could get.
The same situation applied to executives of the steel plant so in essence everyone was in the same rickety boat.
Then, as Plummer describes it, the improvement came not via one move but a multitude of many actions which improved the productivity and economics of the plant.
And that’s exactly what must happen to save any plant under threat. Executives and workers realised they were both in the same boat and worked together how to make the improvements. And there was no massive step – just a series of small steps.
Whyalla was also fortunate in that the blast furnace has been relined, so there is no need for substantial capital works in coming years and what works are required will be covered by depreciation.
They are also fortunate that cash from the iron ore and grinding operations bought time and the bankers did not pull the rug in the dark days.
With the steelworks monkey off his back Plummer is now looking to a very prosperous company. The market has started to wake up to the fact that iron ore and grinding materials for miners is a growth business and the shares are being re-rated.
Once the cash set to be generated has paid down debt, Plummer clearly has in mind capital returns to shareholders. But that’s getting ahead of the game.