AK Steel (AKS) Enters JV, Acquires Significant Met Coal; Sees Deal Accretive to FY12 Earnings
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AK Steel (NYSE: AKS) announced today that it has formed a joint venture with an existing company that will produce iron ore concentrate, a feedstock for iron-based steelmaking raw materials, and, in a separate transaction, acquired all of the stock of a company with significant reserves of low volatile metallurgical coal (met coal), used to produce fuel for iron-making blast furnaces, which AK Steel operates in Middletown, OH and Ashland, KY.
AK Steel believes the acquisitions will be accretive to earnings in 2012.
From the release:
"AK Steel's investment in iron ore was made through a joint venture with Magnetation, Inc. (Magnetation), a private company headquartered in Nashwauk, MN, which recovers high-purity iron concentrate from legacy reserves of previously mined ore deposits using low-cost and environmentally-sound proprietary technology.
AK Steel owns 49.9% of the new joint venture, named Magnetation LLC, which currently produces about 400,000 metric tonnes (441,000 short tons) of iron ore concentrate annually from a plant near Keewatin, MN. The joint venture is constructing a second plant near the existing operation with a targeted annual capacity of approximately 1 million metric tonnes (1.1 million short tons). The joint venture expects to expand to a rate of about 3.5 million metric tonnes (3.9 million short tons) annually by 2016 with a total of four concentrate plants.
Magnetation LLC also plans to complete construction, by 2016, of an approximate 3 million metric tonnes-per-year (3.3 million short tons-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% of AK Steel's current iron ore pellet requirements, at a cost substantially below the current world market price.
Magnetation utilizes magnetic separation technology to recover iron ore from existing stockpiles of previously mined material. Utilizing these iron ore "tailings" eliminates the need for traditional drilling, blasting and excavating, and can result in the creation of new wetlands in an environmentally responsible method.
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 the third quarter of 2012, with the remaining $150 million funding anticipated between 2013 and 2016.
Metallurgical Coal Transaction Details
AK Steel also said it had acquired all of the stock of Solar Fuel Company, Inc., a private company which controls, through ownership and lease, estimated reserves exceeding 20 million short tons (based on U.S. Securities and Exchange Commission guidelines) of low volatile met coal in Somerset County, PA.
AK Steel said that it will pay $36 million in cash for the coal company, which the company plans to rename AK Coal Resources, Inc. (AK Coal Resources), 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.
AK Steel anticipates that AK Coal Resources' met coal production will provide the steelmaker with significant cost savings for low volatile met coal once mining activities commence. Such savings may be achieved through direct consumption and/or third party sales as a financial hedge to the market prices of met coal."
AK Steel believes the acquisitions will be accretive to earnings in 2012.
From the release:
"AK Steel's investment in iron ore was made through a joint venture with Magnetation, Inc. (Magnetation), a private company headquartered in Nashwauk, MN, which recovers high-purity iron concentrate from legacy reserves of previously mined ore deposits using low-cost and environmentally-sound proprietary technology.
AK Steel owns 49.9% of the new joint venture, named Magnetation LLC, which currently produces about 400,000 metric tonnes (441,000 short tons) of iron ore concentrate annually from a plant near Keewatin, MN. The joint venture is constructing a second plant near the existing operation with a targeted annual capacity of approximately 1 million metric tonnes (1.1 million short tons). The joint venture expects to expand to a rate of about 3.5 million metric tonnes (3.9 million short tons) annually by 2016 with a total of four concentrate plants.
Magnetation LLC also plans to complete construction, by 2016, of an approximate 3 million metric tonnes-per-year (3.3 million short tons-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% of AK Steel's current iron ore pellet requirements, at a cost substantially below the current world market price.
Magnetation utilizes magnetic separation technology to recover iron ore from existing stockpiles of previously mined material. Utilizing these iron ore "tailings" eliminates the need for traditional drilling, blasting and excavating, and can result in the creation of new wetlands in an environmentally responsible method.
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 the third quarter of 2012, with the remaining $150 million funding anticipated between 2013 and 2016.
Metallurgical Coal Transaction Details
AK Steel also said it had acquired all of the stock of Solar Fuel Company, Inc., a private company which controls, through ownership and lease, estimated reserves exceeding 20 million short tons (based on U.S. Securities and Exchange Commission guidelines) of low volatile met coal in Somerset County, PA.
AK Steel said that it will pay $36 million in cash for the coal company, which the company plans to rename AK Coal Resources, Inc. (AK Coal Resources), 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.
AK Steel anticipates that AK Coal Resources' met coal production will provide the steelmaker with significant cost savings for low volatile met coal once mining activities commence. Such savings may be achieved through direct consumption and/or third party sales as a financial hedge to the market prices of met coal."
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