An Asian-based consortium led by South Korean steelmaker Posco and China Steel Corporation (CSC) has begun a joint venture to acquire a 15% stake in Canada’s ArcelorMittal. The company’s Ladrador Trough iron ore mining operation and infrastructure assets in Quebec’s northern region will be part of the $1.1 billion deal.
As part of the deal Posco and CSC will enter into long-term iron ore supply agreements.
“This joint venture, incorporating a long-term off-take agreement, is consistent with our strategy to forge strategic relationships with key customers as we build our global mining business,” says ArcelorMittal’s chief executive for mining Peter Kukielski. “The consortium will be an excellent partner as we pursue further expansion.”
The deal remains subject to various closing conditions, including regulatory clearance by the Taiwanese government. It is expected to close in two instalments in the first and second quarters of 2013.
Reports that ArcelorMittal was looking to sell a minority ownership stake in its Quebec iron ore assets had been circulating for some time. While observers cited low prices and weak Chinese demand as drivers behind such a move, conditions have since changed. Iron ore prices have risen almost 70% since hitting a three-year low last September and Chinese demand is expected to surge in 2013.
In October, ArcelorMittal slashed its dividend as it slid into a third-quarter loss on the back of a slowdown in China. Arcelor also said it was committed to reducing its debt and increasing its productivity and efficiency. The Luxemburg-based steel and mining giant saw its debt increase by $1.2 billion during the third quarter, to $23.2 billion, because of negative operating cashflow.
The steelmaking giant has a portfolio of more than 20 mines in operation and development and the reports said the company had been prepared to sell up to a 30% stake in its Mont Wright mine in Quebec, acquired as part of its 2006 takeover of Dofasco.
Industry analysts said attracting partners could help fund ArcelorMittal’s plans, announced last May, to spend $2.1 billion to expand annual production to 24 million tonnes from 14 million tonnes by 2013 at the facility near Labrador.
Asian steelmakers would be interested because they are looking to secure raw materials. And although costs to ship ore from Canada to Asia are higher than from Australia, they are manageable, analysts say.
ArcelorMittal is a leading integrated global steel and mining company, with a presence in more than 60 countries. In 2011, ArcelorMittal had revenues of $94 billion and crude steel production of 91.9 million tonnes, representing about 6% of world steel output.