AK Steel Acquires Iron Ore, Met Coal Interests
10/05/2011 - AK Steel has formed a joint venture with Magnetation for the production of iron ore concentrate. In a separate transaction, AK Steel also acquired all of the stock of Solar Fuel Company, which has significant reserves of low volatile metallurgical coal.
AK Steel has formed a joint venture with Magnetation, Inc. for the production of iron ore concentrate. In a separate transaction, AK Steel also acquired all of the stock of Solar Fuel Company, Inc., which has significant reserves of low volatile metallurgical coal (met coal).
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 owns 49.9% of the new joint venture, named Magnetation LLC, which currently produces about 400,000 tonnes (441,000 short tons) of iron ore concentrate annually from a plant near Keewatin, Minn. AK Steel’s joint venture partner, Magnetation, Inc., is a private company headquartered in Nashwauk, Minn., that recovers high-purity iron concentrate from legacy reserves of previously mined ore deposits using low-cost and environmentally sound proprietary technology.
The joint venture is constructing a second plant near the existing operation with a targeted annual capacity of approximately 1 million tonnes (1.1 million short tons). The joint venture expects to expand to an annual rate of about 3.5 million tonnes (3.9 million short tons) by 2016 with a total of four concentrate plants.
The joint venture also plans to complete construction, by 2016, of a pelletizing plant that will consume the majority of the joint venture's iron concentrate production. The pelletizing plant will have an annual processing capacity of approximately 3 million tonnes (3.3 million short tons). Iron ore pellets produced at the facility will satisfy about 50% of AK Steel's current iron ore pellet requirements, at a cost substantially below the current world market price.
AK Steel said it will contribute a total $297.5 million for its interest in the joint venture, funded over several years, with an initial investment of $100 million in 2011. AK Steel expects to invest $47.5 million in the third quarter of 2012, with the remaining $150 million funding anticipated between 2013 and 2016.
AK Steel also said it had acquired all of the stock of Solar Fuel Co., Inc., for $36 million in cash. Solar Fuel — which the company plans to rename as AK Coal Resources, Inc. —controls, through ownership and lease, estimated reserves exceeding 20 million short tons (based on U.S. SEC guidelines) of low volatile met coal in Somerset County, Pa. AK Steel said it expects to invest approximately $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.
"These investments represent significant steps in AK Steel's top strategic initiative to further vertically integrate through increased ownership of steelmaking raw materials," said James L. Wainscott, Chairman, President and CEO of AK Steel. "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."
AK Steel produces flat-rolled carbon, stainless and electrical steels, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets. The company employs about 6200 men and women in Middletown, Mansfield, Coshocton and Zanesville, Ohio; Butler, Pa.; Ashland, Ky.; Rockport, Ind.; and its corporate headquarters in West Chester, Ohio.
AK Steel owns 49.9% of Magnetation LLC, a joint venture headquartered in Nashwauk, Minn., that produces iron ore concentrate from previously mined ore reserves. AK Steel also controls, through ownership and lease, metallurgical coal reserves exceeding 20 million tons in Somerset County, Pa.
AK Tube LLC, a wholly-owned subsidiary of AK Steel, employs about 300 men and women in plants in Walbridge, Ohio, and Columbus, Ind. AK Tube produces carbon and stainless electric resistance welded (ERW) tubular steel products for truck, automotive and other markets.
