West Chester, Ohio-based flat-rolled steelmaker AK Steel announced Tuesday two major moves to better vertically integrate the company, after being continuously pinched on profits because of high iron ore and coal costs.
First, AK Steel has entered into a joint venture with Nashwauk, Minnesota based Magnetation, Inc., an iron concentrate recovery company. AK Steel owns 49.9 percent of the joint venture, named Magnetation LLC, which currently produces about 40,000 metric tons (mt) of iron ore concentrate annually. However, Magnetation is constructing a second plant near its existing Nashwauk operation with targeted annual capacity of approximately 1 million metric tons. The joint venture is also planning to expand to a total of four concentrate plants and 3.5 million mt of annual production by 2016.
Magnetation LLC also plans to complete construction, by 2016, of an approximate 3 million mt-per-year pelletizing plant which will then consume the majority of the joint venture's iron concentrate production. The iron ore pellet production will satisfy about 50 percent 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 Q3 2012, with the remaining $150 million funding anticipated between 2013 and 2016.
Additionally, AK Steel also announced that it has acquired Solar Fuel Company, Inc., which controls about 20 million net tons (nt) of metallurgical coal assets in Somerset County, Pennsylvania. AK Steel said that it will pay $36 million in cash for the coal company, which AK Steel plans to rename AK Coal Resources, Inc., consisting of $24 million in 2011, and the balance paid over the following three years. 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.
James L. Wainscott, Chairman, President and CEO of AK Steel said that both the joint venture and met coal acquisition "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."