SKorean, Chinese-led consortium to buy 15% of ArcelorMittal Canada for $1.1B

LUXEMBOURG – An Asian-based consortium is acquiring a 15 per cent stake in Montreal-based ArcelorMittal Mines Canada for $1.1 billion in cash.

The transaction will see a group led by South Korean steelmaker Posco and China Steel Corp. enter into a joint venture partnership that will own ArcelorMittal’s Labrador Trough iron ore mining and infrastructure assets in Quebec’s northern region.

The consortium also includes other investors, who were not identified in the announcement.

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,” said Peter Kukielski, ArcelorMittal’s chief executive for mining.

“The consortium will be an excellent partner as we pursue further expansion at AMMC,” added Kukielski, who is also a member of the group management board.

The deal, announced by the company’s Luxembourg-based parent, is 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 since last fall.

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 per cent 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 Luxembourg-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 cash flow.

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 per cent 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 (NYSE:MT) plans, announced last May, to spend $2.1 billion to expand annual production to 24 million tons from 14 million tons 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 said.

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 approximately 6 per cent of world steel output.

ArcelorMittal shares closed up 38 cents, or 2.18 per cent, to US$17.85 Wednesday in New York.