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Bluescope buys Cargill out of North Star, saves Port Kembla

BLUESCOPE STEEL
Jeremy Piper | Bloomberg | Getty Images

Australia's biggest steelmaker, Bluescope Steel, on Monday said it would keep its flagship Port Kembla steelworks open after persuading the government to defer 60 million Australian dollars ($43 million) in payroll tax.

While trimming operations in Australia, Bluescope also said it had agreed to buy out joint venture partner Cargill's 50-percent share of the North Star mill in the United States for $720 million, giving it full ownership of the Ohio site.

Bluescope, which has already cut labor costs by $60 million by eliminating 500 job cuts, or 10 percent of its Australian workforce, and freezing wages, said the tax agreement with the New South Wales state government was crucial to keeping the Port Kembla plant open.

The changes drove Bluescope shares 12 percent higher in early trading to A$4.55, outpacing more modest gains in the broader market.

Low steel prices and weaker demand in Asian export markets due to overcapacity have forced Australian steel companies to cut costs to survive.

Earlier this month, Arrium announced it would cut A$100 million a year in costs at its Whyalla steelworks in neighboring South Australia state.

Those cuts were in addition to an overall reduction target of A$60 million announced in August.

Before that Arrium reduced output from it iron ore business by a third to 9 million tonnes to stem losses on higher cost production.

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In acquiring Cargill's stake in North Star, Bluescope exercised its right of last refusal, matching an offer from an unnamed third party, the company said.

"It is centrally located within a large scrap pool, operates close to its core markets, has low conversion costs and benefits from a highly motivated and focused workforce," it said.

Owing to the changes, Bluescope upgraded its first half earnings outlook by about A$50 million, saying earnings before interest and tax would be about 40 percent above the previous six months.