November 29, 2021

DealBook: ArcelorMittal to Sell Stake in Iron Ore Unit for $1.1 Billion

8:44 a.m. | Updated The giant steel maker ArcelorMittal agreed on Wednesday to sell a 15 percent stake in one of its premier iron ore units, ArcelorMittal Mines Canada, for $1.1 billion.

After building up the world’s largest steel company through a series of acquisitions and takeovers in the era before the financial crisis, Lakshmi Mittal, ArcelorMittal’s chief executive and controlling shareholder, is continuing to sell off assets to reduce debt as he struggles to manage a savage downturn in the industry and his own company’s fortunes.

ArcelorMittal says demand for steel in its crucial European market is down about 30 percent from 2007. Including this transaction, the company has disposed of assets worth $4.2 billion since September 2011.

Under the terms of the sale, a consortium – including Posco of South Korea, the world’s fifth-largest steel maker, and China Steel of Taiwan – will gain long-term access to iron ore from the mines proportionate to the new ownership stakes.

The group also includes South Korean financial investors including EQ Partners, a private equity fund, according to a person familiar with the matter. ArcelorMittal will retain an 85 percent stake.

The move was well-received by the markets, partly because ArcelorMittal seems to be receiving good value for the sale without giving up much. Shares in ArcelorMittal rose 3.9 percent in morning trading on Wednesday in Europe.

Jeff Largey, a steel analyst at Macquarie in London, wrote in a research note to clients that the $7.3 billion valuation the transaction implied for the mining operations was “an excellent result” for ArcelorMittal. He said that his valuation had been closer to $4 billion. Mr. Largey also asked whether bringing in partners was a sign the company “believes the iron ore cycle is past its peak.”

The markets also appeared pleased that the deal would help ArcelorMittal, which is based in Luxembourg, with its goal of reducing debt. Last year, the ratings agencies Moody’s Investors Service and Standard Poor’s both cut ArcelorMittal’s credit rating to junk status because of its high debt and anticipation of a worsening environment for the steel industry.

Last month the company took a $4.3 billion impairment charge on its business units in Europe, where it made around 46 percent of its steel in 2011. The company posted a loss of about $49 million on $19.7 billion in revenue in the third quarter of 2012.

ArcelorMittal’s net debt was $23 billion as of Sept. 30, the latest figures available. Michael Shillaker, an analyst at Credit Suisse in London, estimated in a research note that net debt could fall to around $20 billion this year.

The deal is reminiscent of the heavy investments that Asian investors have made in the energy industry. Just as Asian companies are trying to assure themselves of energy supplies for their growing economies, Posco and China Steel are locking up iron ore for future operations.

The stake sale will also help ArcelorMittal cover the cost of a 1.2 billion Canadian dollar expansion of the mines to 24 million tons a year from the present 16 million tons a year. If the company subsequently expands annual ore output to 30 million tons, the new partners would contribute in proportion to their stakes, Mr. Largey of Macquarie said.

ArcelorMittal put all of its growth capital spending, or about $1.5 billion, into its mining operations last year on the belief that mining would bring a better return than the depressed steel industry, according to Giles Read, a company spokesman. The company says its capital spending plans for next year are “under scrutiny.”

The mines in which ArcelorMittal is selling a stake are considered top assets. The mining unit, which does not include activities in Baffinland, produces 40 percent of Canada’s iron ore, according to the company. The ore is trucked by rail from mines near Labrador City to processing facilities in Port-Cartier on the Gulf of Saint Lawrence.

‘‘We are committed to growing ArcelorMittal’s mining business,’’ Peter Kukielski, chief executive of the company’s mining division, said in a statement.

The deal is expected to close in two installments during the first and second quarters of this year.

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DealBook: Peabody and Arcelor Seek Control of Macarthur Coal

Macarthur Coal is back in play, more than a year after it rejected a takeover offer.

The company said on Monday that Peabody Energy and ArcelorMittal had offered to take a controlling stake in Macarthur for 15.50 Australian dollars a share, valuing the coal miner at 4.7 billion dollars ($5.1 billion).

In May 2010, Macarthur’s board rejected an offer from Peabody of 15 dollars a share, calling it too low.

This time Peabody, an American coal company based in St. Louis, is teaming up with one of Macarthur’s largest shareholders, the steel maker ArcelorMittal.

Arcelor holds about 16 percent of Macarthur, second only to Citic, the Chinese state-owned investment company that has a 24 percent interest; Citic opposed the offer from Peabody last year.

Citic, which also has a coal supply agreement with Macarthur, made it known at the time that it was unwilling to sell at any price. In conjunction with another major investor, the South Korean steel maker Posco, Citic can effectively block a takeover. In Australia, an acquirer must have 90 percent of shares to move forward with its plans.

If Macarthur remains a listed company in which Peabody and Arcelor simply hold a controlling interest of 50.01 percent or more, it would be difficult for the new owners to make significant changes to management, a person with knowledge of the matter said.

Peabody had initially bid 16 dollars a Macarthur share last year, but cut its bid after the Australian government began to consider a resource tax proposal.

There has been additional pressure on Australian miners. On Sunday, Prime Minister Julia Gillard’s Labor Party government disclosed the details of its carbon tax, which would impose a charge of 23 dollars on each metric ton of carbon emissions a company produced. Coal mining companies will be taxed for so-called fugitive emissions, or gases that escape naturally during their operations.

The planned carbon tax failed to discourage Peabody and Arcelor from their bid for Macarthur, but still weighed on many Australian stocks on Monday.

Macarthur’s shares, which closed Friday at 11.40 dollars, opened on Monday at 10.99 dollars, before rising to 11.08 dollars after news of the takeover bid.

The company, based in Brisbane, was also hit by floods that devastated Queensland last year. The natural disaster cost the company tons of production, although that was mostly offset by a rise in coal prices on fears it would become scarce.

Macarthur is known for its pulverized coal, a key ingredient in the steel-making process.

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