AK Steel announced that it has formed a JV with an existing company that will produce iron ore concentrate and in a separate transaction acquired all of the stock of a company with significant reserves of low volatile metallurgical coal.
Mr James L Wainscott chairman, president & CEO of AK Steel said “These investments represent significant steps in AK Steel's top strategic initiative to further vertically integrate through increased ownership of steelmaking raw materials. They give AK Steel a clear plan for increasing raw material self sufficiency and will provide us with both a financial hedge against global market price increases and low cost steelmaking inputs for our own consumption. Importantly, we believe these acquisitions will be accretive to AK Steel's earnings in 2012, and further enhance our financial results as raw material production increases.”
Iron Ore Transaction Details
AK Steel's investment in iron ore was made through a joint venture with Magnetation, Inc. (Magnetation), a private company headquartered in Nashwauk, MN, which recovers high purity iron concentrate from legacy reserves of previously mined ore deposits using low cost and environmentally sound proprietary technology.
AK Steel owns 49.9% of the new joint venture, named Magnetation LLC, which currently produces about 400,000 metric tonnes (441,000 short tons) of iron ore concentrate annually from a plant near Keewatin, MN. The joint venture is constructing a second plant near the existing operation with a targeted annual capacity of approximately 1 million metric tonnes (1.1 million short tons). The joint venture expects to expand to a rate of about 3.5 million metric tonnes (3.9 million short tons) annually by 2016 with a total of four concentrate plants.
Magnetation LLC also plans to complete construction, by 2016, of an approximate 3 million metric tonnes per year (3.3 million short tons-per-year) pelletizing plant which will then consume the majority of the joint venture's iron concentrate production. The iron ore pellet production will satisfy about 50% of AK Steel's current iron ore pellet requirements, at a cost substantially below the current world market price.
Magnetation utilizes magnetic separation technology to recover iron ore from existing stockpiles of previously mined material. Utilizing these iron ore "tailings" eliminates the need for traditional drilling, blasting and excavating, and can result in the creation of new wetlands in an environmentally responsible method.
AK Steel said it will contribute a total USD 297.5 million for its interest in the joint venture, funded over several years, with an initial investment of USD 100 million in 2011. AK Steel expects to invest USD 47.5 million in the third quarter of 2012, with the remaining USD 150 million funding anticipated between 2013 and 2016.
Metallurgical Coal Transaction Details
AK Steel also said it had acquired all of the stock of Solar Fuel Company, Inc., a private company which controls, through ownership and lease, estimated reserves exceeding 20 million short tons (based on US. Securities and Exchange Commission guidelines) of low volatile met coal in Somerset County, PA.
AK Steel said that it will pay USD 36 million in cash for the coal company, which the company plans to rename AK Coal Resources Inc, consisting of USD 24 million in 2011 and the balance paid over the following three years. AK Steel said it expects to invest approximately USD 60 million in AK Coal Resources, most of which is expected to be spent between 2013 and 2015, to develop its mining operations and begin coal production.
AK Steel anticipates that AK Coal Resources' met coal production will provide the steelmaker with significant cost savings for low volatile met coal once mining activities commence. Such savings may be achieved through direct consumption and/or third party sales as a financial hedge to the market prices of met coal.
