ArcelorMittal sells Canadian stake to Asian consortium

With demand for steel in Europe tumbling about 8% in 2012 and a cumulative 29% since 2007, Luxembourg-based steel maker ArcelorMittal (MT-N) has decided to sell a 15% stake in ArcelorMittal Mines Canada to an Asian consortium — including South Korean steelmaker Posco and China Steel Corp. of Taiwan — for US$1.1 billion in cash.

ArcelorMittal Mines Canada produces 15 million tonnes of iron ore concentrate a year and more than 9 million tonnes of iron oxide pellets — some of which will now be earmarked for members of the Asian consortium in long-term offtake agreements, based on their proportionate interest in the assets.

If the sale is approved, Arcelor would still own 85% of its Canadian subsidiary, which generates 40% of Canada’s total iron ore production from two large open-pit mines (Mont-Wright and Fire Lake). ArcelorMittal Mines Canada also owns the Port-Cartier industrial complex consisting of a pellet plant, storage areas and port facilities on the Gulf of St. Lawrence.

The Canadian mining unit does not include ArcelorMittal’s stake in the Mary River iron ore deposit in northern Baffin Island, however, which by some estimates is one of the finest undeveloped iron ore deposits in the world due to its high-quality ore and hefty size. The project, about 160 km south of Pond Inlet in Nunavut, is jointly owned by ArcelorMittal and Nunavut Iron Ore, a subsidiary of Iron Ore Holdings.

ArcelorMittal is selling off assets to trim net debt, which the company estimated in late October would reach US$22 billion by the end of 2012.

In December the company took a US$4.3-billion impairment charge on its business units in Europe, and in October reported a US$49-million loss on sales of US$19.7 billion for the three months ended Sept. 30. The steelmaker also noted at the time that its board of directors recommended cutting the annual dividend payment from US75¢ per share to US20¢ per share, subject to shareholder approval at the company’s annual general meeting in May 2013.

But the company also said its planned expansion of ArcelorMittal Mines Canada to 24 million tonnes per year (from the current 15 million tonnes per year) was on track for ramp-up during the first half of 2013.

Peter Kukielski, CEO of ArcelorMittal’s mining division, says that the asset sale was a key component of the company’s game plan. “This joint venture incorporating a long-term offtake agreement is consistent with our strategy to forge strategic relationships with key customers, as we build our global mining business,” he says. “This consortium will be an excellent partner as we pursue further expansion at AMMC.”

The deal is subject to approval by the government of Taiwan and is expected to close in two installments in the first and second quarters of 2013.

ArcelorMittal has over 20 mines in operation and development, and the company says it’s the world’s fourth-largest iron ore producer. ArcelorMittal Mines Canada was set-up in January 2008 following ArcelorMittal’s acquisition of Quebec Cartier Mining Co. in 2006.

ArcelorMittal sold off a number of assets in 2012 to help weather the economic crisis in Europe and weak demand for steel. In mid-November, the company sold its 50% stake in Kalagadi Manganese for US$447 million; in October it permanently closed its Florange plant in France; in July it sold its 48.1% stake in Paul Wurth Group, an international engineering company specializing in iron and steel, to SMS GmbH; and in May sold its steel foundation distribution business in Nafta (Skyline Steel and Astralloy) to Nucor Corp. for US$605 million. Also in May, ArcelorMittal divested its 23.5% stake in energy company Enovos International to AXA Private Equity for US$435 million.