Indias Essar to Buy Minnesota Steel to Add Iron Ore

Indias Essar to Buy Minnesota Steel to Add Iron Ore

Essar Global Ltd., the owner of India’s third-biggest steelmaker, agreed to buy Minnesota Steel Industries LLC for an undisclosed price to add 1.4 billion tons of iron-ore reserves and a steel mill in North America.

Essar will invest about $1.65 billion to build the 2.5 million-ton-a-year mill in northern Minnesota, John Elmore, closely held Minnesota Steel’s chief executive officer, said today in a telephone interview. The reserves are enough for about a century’s steel production.

“It takes two tons of iron ore to make one ton of steel, so if you can build a steel mill next to an iron mine you can really save on costs,” Scott Burns, a steel analyst at MorningStar Inc. in Chicago, said in a phone interview.

The acquisition is the second announced by Essar this week. Essar Global, which owns 88 percent of Mumbai-based Essar Steel, agreed April 15 to buy Canada’s Algoma Steel Inc. for $1.63 billion to supply U.S. carmakers such as General Motors Corp. Algoma shipped 2.42 million tons of steel last year.

Indian steelmakers, buoyed by rising profits and economic growth, are expanding abroad to secure access to raw materials and more profitable steel-production facilities. The price of iron ore, the main material used in steelmaking, has almost tripled in the past five years, prompting companies including Arcelor Mittal to seek greater control over supplies.

North American Cornerstone

“Our investment in Minnesota Steel is exciting as it gives us a cornerstone in North America,” Shashi Ruia, Essar Global’s chairman, said in an e-mailed statement. “From this, we will further expand our global steel business.”

Minnesota Steel, based in St. Paul, Minnesota, is building North America’s first complex that will include iron-ore mining, processing and steelmaking on a single site, according to the company’s Web site. Construction of the plant near Nashwauk is expected to start in the third quarter, with production beginning in 2009, Elmore said.

“We had every intention of developing this ourselves,” Elmore said. “Essar decided they wanted to step up and take everything. It was not the way we had planned it.”

The company’s iron-ore reserves are enough for about a century of steel production, based on planned output of 2.5 million tons a year of finished steel, Elmore said.

Lower Costs

Minnesota Steel said its new mill will use electric arc furnaces to produce semi-finished steel slabs that will be shipped to clients in the U.S. Midwest for finishing. The plant’s costs to produce steel may be as much as 20 percent lower than for competing mini-mill operators, such as Nucor Corp. or Steel Dynamics Inc., the company said.

Shares of Essar Steel closed today at 40.65 rupees on the Bombay Stock Exchange, valuing the company at 46.3 billion rupees ($1.1 billion). They have climbed 15 percent this year.

Essar is following Indian companies such as Tata Steel Ltd. and Hindalco in boosting investments overseas. Tata outbid Brazil’s Cia. Siderurgica Nacional SA in an auction for the U.K.’s Corus Group Plc in January, offering 6.2 billion pounds ($12 billion). Hindalco, India’s biggest aluminum producer, agreed in February to buy Novelis Inc., an Atlanta-based can sheet producer, for $3.4 billion.

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