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20. April 2007

Essar Strikes Deal To Build $1.6B Steel Plant In Minnesota

MUMBAI - In its second acquisition in North America in three days, India’s Essar Steel said Wednesday that it will buy a U.S. company with substantial iron ore reserves and carry forward its plan to build an advanced "mine mouth" steel plant in Minnesota.

The purchase price for privately held Minnesota Steel was not announced, but India’s third-largest steelmaker said it would invest a total of $1.65 billion in the plant and the company’s acquisition. Some reports said Minnesota Steel’s owners would receive between $80 million and $100 million.

Minnesota Steel holds 1.4 billion tons of iron ore reserves in the Mesabi range in northeast Minnesota; it had been planning to build a complex there that would integrate mining, processing and steel production on one site, which the company says could deliver cost savings of as much as 20%.

The company was formed in 2004 to carry out the project, but it was in need of heavy financial and technical assistance.

“Essar has a track record of building projects of this scale in India. In addition, the company is very environmentally aware,” said Joseph C. Bennett, chairman of Minnesota Steel.

Construction on the plant, which Minnesota Steel says would be the first of its kind in North America, is expected to start in the third quarter and production will begin from 2009.

It is expected to produce 2.5 million tons of unfinished steel slab a year.

“By developing this significant iron ore resource, Minnesota Steel has the opportunity to be one of the low-cost producers of steel in the world,” said Essar Global Chairman Shashi Ruia.

Earlier this week, Essar Steel said it had agreed to acquire Canada’s Algoma Steel for $1.63 billion.

Algoma's sole plant is across Lake Superior from the site of the planned Minnesota complex; Essar is likely planning to reap efficiencies by shipping slab across the lake to Algoma for processing into finished products.

Algoma supplies steel sheet to American carmakers General Motors and Ford.

“Our investment in Minnesota Steel is exciting as it gives us a cornerstone in North America. From this, we will further expand our global steel business,” Ruia said.

With steel prices rising due to strong demand in India and China, the world steel industry has been consolidating, and Indian steel companies have been at the forefront, reaching overseas for acquisitions with the aim of becoming global players.

Mumbai-based Essar Steel operates an integrated steel plant in India that produces 4.6 million tons. It plans to expand capacity there to 8.5 million tons by 2009.

It also has projects to build steel plants in Vietnam and the Middle East.

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