Victoria’s PE play on scrap metal recycling turns to junk - Voluntary Administrators

Extract of AFR article by Anthonthy MacDonald on 7 February 2024.  
Full article available at www.afr.com

Pacific Metal was backed by the state's investment fund and big super.  But its collapse raises the question of whether governments can really pick winners.

Wexted was appointed in mid-January after nearly one month spent assessing Pacific Metal’s cash flows. Wexted deems the company insolvent and says it was ineligible for safe harbour bankruptcy protections because it had missed tax filings.

Wexted offered the administration job to larger firms KordaMentha and McGrathNicol. Both declined it, citing the recent fire at Laverton North (which is not uncommon in the industry) and environmental concerns, according to Wexted’s recount of events.

Wexted is offering Pacific Metal’s two parts separately: the Pacific Metal business based at Laverton North is being shopped to one set of buyers, while Metal Men Recycling at Pakenham is a separate auction.

"We are undertaking an expedited sale or will have to oversee a managed wind down,” Wexted Advisor’s Chris Johnson, the company’s administrator, says. The job is so hairy that it has deterred Wexted’s larger rivals KordaMentha and McGrathNicol.

The pace of Pacific Metal’s collapse also raises questions about what went wrong.  “Our investigations continue,” Johnson, the administrator, says.

The project was about cashing in on a push for green steel – made from recycled scrap – which uses far less energy to manufacture than steel produced from scratch and should be in hot demand in coming years. 

Those involved in Pacific Metal’s roll-up, which involved the acquisition of three businesses and briefly peaked at close to 10 per cent of the Victorian scrap market, say the thesis was derailed by a softening building construction market, soft global scrap prices (which flow through to Australia).