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AK Steel announces multi-million dollar deals with two companies

October 14, 2011  |  AK Steel West Chester Ohio

AK Steel announces multi-million dollar deals with two companies


By Chelsey Levingston, Staff Writer
Updated 11:53 AM Wednesday, October 5, 2011

WEST CHESTER TWP. - AK Steel Corp. announced a pair of multi-million dollar deals Tuesday for interests in coal and iron-ore companies that officials said will help Butler County’s third-largest employer control rising raw material prices.

The steelmaker said it will pay $124 million this year for the deals, part of a more than $300-million investment over several years.

The deals include acquiring a coal company in Pennsylvania and forming a joint venture with a company in Minnesota to make iron ore concentrate.

The deals announced Tuesday evening put AK Steel close to owning 50 percent of its key raw materials of iron ore, coke and coal, said Alan McCoy, AK Steel vice president and spokesman. Previously, AK bought iron ore and coal on the market under contracts, he said.

The moves help secure jobs at AK Steel, Middletown’s largest employer with more than 2,100 workers, he said.

“Iron ore and coking coal are the two that are used directly at Middletown Works,” McCoy said.

For $36 million in cash, AK Steel officials said the company acquired all the stock of Solar Fuel Company Inc., a private firm in Somerset County, Pa., with estimated reserves of more than 20 million short tons of a grade of coal commonly used at Middletown Works.

The company will be renamed AK Coal Resources.

In the second deal, AK Steel formed a joint venture with Magnetation Inc., a private company headquartered in Nashwauk, Minn. Magnetation recovers high-purity iron concentrate from reserves of previously mined ore deposits, according to AK Steel.

AK Steel said it will own 49.9 percent of the new joint venture, named Magnetation LLC.

“These investments represent significant steps in AK Steel’s top strategic initiative to further vertically integrate through increased ownership of steelmaking raw materials,” James Wainscott, chairman, president and chief executive officer of AK Steel, said in a statement.

“They 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,” he added.

“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.”

The announcements come within a month of the first coke to be produced at a newly built plant in Middletown to supply AK Steel, according to the cokemaker. SunCoke Energy will produce metallurgical coke, which is used in the blast furnace of a steel plant to convert iron ore to iron.

AK Steel will pay $24 million this year for Solar Fuel Company and pay the rest of the $36 million over the following three years, according to the company.

AK said it expects to invest another $60 million between 2013 and 2015 in AK Coal Resources to develop its mining operations and begin coal production. 

After the coal production starts, AK Steel said it will save costs by making and selling its own coal instead of buying it on the market.

AK Steel said it will invest $297.5 million over several years in its joint venture Magnetation. Plans include building three more iron ore concentrate plants that produce 3.5 million short tons by 2016. Magnetation already has one plant in Minnesota.

AK Steel also said within the next five years, the joint venture plans to build a plant that makes 3.3 million short tons a year of iron ore pellets from the iron ore concentrate product.

This will fill about 50 percent of AK Steel’s iron ore pellet needs for less than the current world market price for iron ore pellets, according to AK.

McCoy said until the iron ore pellet plant is operational, the joint venture will share revenues in selling iron ore concentrate. Then the pellet plant will produce pellets for AK Steel’s consumption, he said.

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