China Steel to Buy Stake in ArcelorMittal Canadian Unit

A group led by China Steel Corp. and Posco agreed to pay $1.1 billion for 15 percent of ArcelorMittal Mines Canada Inc. to secure supplies of iron ore from two mines.

China Steel will take 3.68 percent for $270 million, Steve Lee, executive vice president at Taiwan’s biggest steelmaker, said today by phone. Posco didn’t say how much it will pay.

The deal gives the group access to mines producing about 40 percent of Canada’s iron ore, according to ArcelorMittal’s website, as the cost of the raw material rises faster than steel prices. ArcelorMittal, the world’s largest steelmaker, is studying selling about 30 percent of the unit to try to reduce its debt, a person familiar with the matter said on Oct. 20.

“If you look at the steel companies and their performance to date, it’s very difficult to improve bottom line earnings if you do not have a low enough iron ore input cost,” said Vanessa Lau, an analyst at Sanford C. Bernstein & Co. in Hong Kong.

Posco and China Steel will agree long-term iron ore off-take agreements proportionate to their interests in the venture, Kaohsiung, Taiwan-based China Steel said today in a statement on its website. Other members of the group are “financial investors,” the company said without elaborating.

Kim Ji Young, a spokeswoman for Posco, the largest South Korean steelmaker, didn’t say how much the company will invest.

Resource Goal

China Steel’s stake will bring the company closer to a goal of getting 30 percent of its iron ore and coal needs from mines it has investments in by 2015. The deal is due to be completed over the first and second quarters, it said in the statement.

The sale adds to ArcelorMittal’s efforts to improve its finances after the producer’s credit standing was cut to junk by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The company has reduced its dividend, sold assets and is moving output to cheaper sites to help cut $23.2 billion of debt.

The purchasers of the 15 percent Canadian stake will pay $1.1 billion in cash, ArcelorMittal said in a statement.

“The market may take any disposal as progress on balance sheet repair but the scale of the disposal is slightly disappointing,” Nomura Holdings Inc. said today in a note. The Canadian operation “is widely regarded to be one of the most sellable parts of ArceloMittal’s portfolio and the limited sale here would therefore raise questions about where further disposals will take place in order to reduce net debt.”

The unit operates two open pit mines, and produces about 15 million metric tons of iron ore concentrate a year and more than 9 million tons of iron oxide pellets, according to its website.

ArcelorMittal rose 3.7 percent to 13.41 euros by 10:35 a.m. in Amsterdam and the Bloomberg Europe Steel Index 3.3 percent.

Posco, with Noble Group Ltd. and Korean investors, ended a A$1.2 billion ($1.3 billion) offer for Sydney-based Arrium Ltd. in October after the target’s board refused to engage with the group. Arrium is an Australian steelmaker and iron ore producer.

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