The future of steelmaker and miner Arrium hangs in the balance this week after the company’s lenders rejected a proposed bailout from a private equity firm.

The State Government is pleading with the banks to continue supporting the company, which employs 7000 people across Australia, including more than 1000 workers at the Whyalla steelworks.

However, Arrium’s workforce is split on a proposal to take a pay cut to help the company bridge a funding gap.

While workers at Arrium’s pellet plant, Whyalla Port and Ardrossan operations in SA agreed to the temporary 10 per cent cut and wage freeze, workers covered by the Middleback Ranges enterprise agreement rejected the proposal.

Arrium Mining executive general manager Matt Reed said only 42 per cent of those who voted backed the cut.

“This is a very disappointing outcome and means we will now need to make an immediate start on the consultation process to implement alternative cost saving initiatives to address the remaining gap in our labour costs,” Reed said in a statement.

He said about 70 per cent of employees at the company’ other operations agreed to the new pay deal.

“I recognise that this would not have been an easy decision, so the business values and appreciates the personal sacrifice that each of these employees has agreed to make,” he said.

Arrium, which is grappling with growing debt and low iron ore prices, said previously it needed to find $60 million in savings to continue operating the Whyalla steelworks.

The Federal Government last month announced it would bring forward a 600km upgrade of rail lines between Adelaide and Tarcoola to assist the steel producer.

But on Monday the company’s banks knocked back a proposed billion-dollar bailout involving private equity group GSO.

SA Treasurer Tom Koustantonis said he still hoped a recapitalisation deal could be reached and confirmed the government would offer some funding provided Arrium ensured the continued operation of the steelworks in Whyalla.

Koutsantonis also urged the major banks to consider the national interest, not only their balance sheets, in their dealings with the company.

“Our banks are the most profitable in the world,” he said.

He said Premier Jay Weatherill had personally contacted NAB chief executive Andrew Thorburn to appeal Arrium’s case.

It would be “ridiculous” if Arrium closed and Australia was forced to import its steel.

While he believed that Arrium wasn’t at risk of imminent collapse, Koutsantonis did sound a warning about the company’s future and repeated his previous prediction that taxpayers would have to contribute to Arrium’s bail-out.

“The future of Arrium is still to be decided,” he said. “The company, its creditors and potential financiers are still locked in negotiations to resolve the company’s financial situation.”

The Government would continue to be involved in these negotiations, including acting as an “honest broker” between the banks and Arrium.

He said the situation was “complicated” and there was no simple answer to the challenges facing Arrium.

“There is a lot at stake here for South Australia an indeed the nation. Our nation’s sovereignty relies on Australia continuing to produce its own steel.”

Federal industry minister Christopher Pyne said the Federal Government was “doing everything in our power to help Arrium”.

He said Arrium’s key problem was underlying debt, not the profitability of the Whyalla operations.

“The banks wouldn’t just close down Whyalla because they’d rather trade out of their difficulties,” Pyne told ABC 891 radio this morning.

– InDaily staff with AAP