September 08, 2008

SDI decides to move ahead on Mesabi nugget plant

Steel Dynamics Inc announced that it is moving forward with the Mesabi Nugget iron making project at Hoyt Lakes in Minnesota and that the State of Minnesota is participating in the project’s financing.

This plant will be the world’s first commercial iron making facility to use the ITmk3® process, an iron nugget production technology pioneered by Kobe Steel Ltd, which Kobe Steel is licensing to the venture. The project will involve the construction of a USD 235 million iron nugget manufacturing facility utilizing iron ore concentrate, coal and natural gas. Annual iron nugget production capacity is expected to be 500,000 tons. Although preliminary construction activity has begun at the Hoyt Lakes site, full construction of the iron making operation is not expected to commence until later this year, following the completion of financing and satisfactory resolution of permitting issues.

Subject to completion of final project financing arrangements, Steel Dynamics intends to invest USD 85 million in equity in the venture and to hold an 81% equity interest, while Kobe Steel plans to invest USD 20 million in equity for a minority equity stake of 19%.

Mr Tim Pawlenty governor of Minnesota announced that the state has approved USD 26.5 million in non recourse financing for the project. Earlier, Iron Range Resources and the Minnesota Department of Employment and Economic Development had announced their support for the project.

Steel Dynamics anticipates that substantially all of the iron output from the planned nugget plant will be consumed in SDI’s mini mills. The company believes that this new business will be capable, at a favorable cost, of providing to its steel mills a domestic source of iron units that are of equal or higher quality than purchased pig iron. In time, additional nugget production facilities could be constructed at the site.

Steel Dynamics also announced that its board of directors has approved an additional initiative related to the Mesabi Nugget facility which is currently in the planning phase. The company plans to develop an existing iron mine on the Mesabi Iron Range and to construct a facility for concentrating iron ore. The company intends to purchase or lease land on the Mesabi Iron Range in Minnesota that is expected to provide a long term supply of iron ore. In the future, the company plans to process the iron ore and use it as raw material feedstock for the nugget plant. In total, the cost of this venture is estimated to be USD 165 million. Operations could begin in late 2009 or early 2010, assuming the timely issuance of permits. The company expects to fund approximately USD 65 million in equity related to this project and will be the sole owner.