New mill, new excitement, new concerns
On January 29, news broke that Big River Steel, LCC planned to build a new steel mill in Mississippi County, Arkansas. The man behind the new venture is none other than John D. Correnti, the former president and CEO of Nucor Corporation. Expectedly, news of the project drew a myriad of speculation, concerns and excitement.
John Correnti has decades of experience in the steel industry working for various corporations, but many know him best as the ousted executive of Nucor Corp. From 1991 to 1999, Correnti served as the President of Nucor, and was the steelmaking giant’s CEO from 1996-1999. He joined Nucor in 1980 and became Nucor’s Vice President in 1984 and served as the company’s COO from 1991-1996. A press release from Nucor at the time of Correnti’s departure simply stated: John D. Correnti has resigned as vice chairman, president, chief executive officer and director. However, industry rumblings indicated that Correnti did not resign so much as he was “let go,” and the decision followed a vicious boardroom battle. Forbes later said Correnti believed his departure from Nucor was “an ego-driven power play.”
But Correnti did not simply pack up his bags and go into early retirement—by the end of 1999, he was serving as the CEO and Chairman of Birmingham Steel Corporation, a position he held until December 2002. Then, from 2002-2005, Correnti was the Chairman and CEO of SteelCorr, LLC, and also served as the company’s president. In 2005, Correnti founded SeverCorr, LLC—later to become Severstal Columbus—and served as the company’s president until January 2008, at which point industry sources say he was bought out by Severstal NA.
Since then, Correnti’s name has been attached to a number of projects, both related and unrelated to steel. In 2008, Correnti, serving as president of Steel Development Co. LLC (SDCO), set out to build a group of four rebar minimills and one flat rolled minimill in Amory, Mississippi. The project received the necessary environmental approval from the state and was already underway when Chinese steelmaker Anshan Steel announced in May 2010 that it signed a “stake investment” with SDCO to hold an approximately 15 percent stake in the company. However, just a few months following the announcement, Anshan put its investment plans on hold following strong opposition from US Congressional leaders.
A group of about 50 Congressman insisted on an investigation of the Chinese steelmaker’s potential investment—not a major surprise given the myriad of US antidumping and countervailing duty cases against Chinese steel products at the time. Vice-Chairman of the Congressional Steel Caucus, Republican Tim Murphy, said in a statement: “Not only would this venture have set a dangerous precedent further undermining our domestic steel market, but it posed a serious national security concerns. We will continue to fight to protect our domestic steel manufacturers should China attempt to infiltrate American steel companies in the future.”
Correnti deemed the investigation absurd considering Anshan would only own less than one-fifth of the total project. Still, the project was never completed.
More recently, another Correnti-headed project, a two-phase silicon metal production plant and a silicon purification plant, was stalled after the production plant failed to place the proper funds in escrow by December 31, 2012 to hold the property. The Mississippi Legislature had previously approved $75.5 million in incentives for Calisolar (later rebranded as Silicor Materials) during a September 1, 2011 special session.
In January of this year, Correnti went back to his roots for a new steel mill venture. The company, Big River Steel, LCC, announced that it would build a more than $1 billion steel mill in Mississippi County, Arkansas that would employ over 500 people with an annual average compensation of $75,000 a year—a boon to the region. John Correnti is not only Big River Steel’s CEO, but he also heads a group of investors backing the project.
The Arkansas Economic Development Commission (AEDC) said that the plans are contingent on approval by the legislature authorizing the state to issue $125 million in general obligation bonds under the authority of Amendment 82 and all necessary regulatory approvals. Of the $125 million generated by the sale of the bonds, $50 million will be a loan to Big River Steel; $50 million will be used for site preparation; $20 million for costs associated with piling—subsurface stabilization and $5 million bond issuance cost.
As required by the Amendment, Arkansas Governor Mike Beebe would refer the project to the legislature for its consideration. This project would mark the first time Amendment 82 has been triggered since its adoption during the November 2004 general election. The amendment would allow the state legislature to approve up to 5 percent of the state’s general revenue budget to be used for bonding of super economic development projects.
Given the magnitude of the state’s funding participation, the AEDC has taken some safeguards: $300 million in equity from company investors and commitments from other lenders must be deposited into an escrow account before bonds are sold; $250 million of company money must be spent before any bond proceeds can be spent on the project. The largest of those investors is slated to be multi-billion dollar private investment company Koch Industries, which confirmed its participation in early February, although exact monetary amounts and other investors were not immediately disclosed.
Correnti later told Prime that the mill would contain an electric arc furnace that would produce flat rolled coils up to 78 inches wide and one-inch thick, in addition to high-strength low-alloy steel for the automotive market and electrical steel for power transformers/electrical motors. He noted that this new mill would focus on niche products/markets that are now often filled by imports and Big River would not be in competition with other domestic EAF producers, but rather foreign producers that export steel to the US, in addition to some local high-cost integrated producers. Correnti said that in the mill’s first phase, it will have the capacity to produce 1.7 million tons, and phase a possible phase two would bring annual steelmaking capacity up to 3 million tons.
Correnti explained choosing a location situated on the Mississippi River was carefully determined—55 different sites were evaluated before the final decision was made. A nearby railroad, availability of steelmaking raw materials (scrap) and utility rates, in addition to “where the market for our products is” all influenced the final choice to build a mill in Mississippi County.
Approval of Amendment 82 is crucial to the mill’s future in Arkansas—without it, Big River Steel won’t get built in the state. “If it doesn’t get built here, it will get built elsewhere,” Correnti said, although he wouldn’t speculate about where exactly “Plan B” would be located; nevertheless, he was confident that “things will work out in Arkansas.”
Should everything move smoothly in the Arkansas legislature, financing could close as early as this August, with construction beginning soon after. Correnti anticipated that construction would begin by the end of 2013 and construction would take approximately 20 months.
Any multimillion dollar venture will inevitably have its supporters and its skeptics. The AEDC is likely the largest supporter of the project, other than Correnti himself, as statements from various state officials touted the significant economic impact the new jobs would bring to Arkansas in general and Mississippi County in particular. Overall, the response to the mill coming to the state has been positive, according to AEDC officials.
Apprehension about Big River seems to be largely split between two different concerns: whether the necessary funds will come through and the mill will be completed and whether there is room in the US market for yet another flat rolled (or rather, any) new steel mill. Various industry sources agreed that the former is certainly valid given the unpleasant way some of Correnti’s previous ventures ended, but the involvement of the multibillion dollar Koch Industries, in addition the AEDC’s safeguards, is promising.
But whether the US steel industry can absorb another 1.7 million tons of flat rolled steelmaking capacity is another issue. Even though the US has climbed out of the depths of the recession in the last few years, 2012 was a difficult year for the steel industry, and the flat rolled market in particular. Last year saw the inevitable bankruptcy, closure and then sale of RG Steel, just months after the Sparrows Point, Warren and Wheeling mills were acquired from Severstal and restarted. Additionally, ThyssenKrupp AG indicated its interest in selling its slab mill in Brazil and flat rolled rolling mill in Calvert, Alabama, prompting many to concede that the current demand environment cannot support more steel.
Correnti dismissed concerns of overcapacity, particularly for the niche products that Big River Steel would produce, and was adamant that there is “always room in the market for a low-cost, quality producer,” and maintained Big River’s focus to displace imports rather than vie for dominance in the crowded domestic steel industry.
If previous projects are any indication, it may be quite some time before we hear of a groundbreaking ceremony for the Big River Steel mill, and even longer to determine the mill’s staying power. One thing does appear certain, though: John Correnti and his multimillion dollar venture plans are here to stay.