ArcelorMittal Expects to Have “Immediate” Impact on Calvert, AL Plant

“So firstly, an overview of the transaction. ArcelorMittal and our partner, Nippon Steel & Sumitomo Metal Corporation, have agreed to acquire 100% of TK USA, which is ThyssenKrupp’s U.S.A. business. The agreed price is $1.55 billion on a debt free and cash free basis and inclusive of working capital. This acquisition will drive a significant expansion of our franchise business in the growing metal automotive steel market. It also expands our presence in other reported markets, including high-quality steel for the energy sector. As part of the agreement with TK, the joint venture will off-take 2 million tonnes of slab from TK CSA at a market-based price.

In addition to the level return on our equity investment, ArcelorMittal have identified synergies amounting to $60 million annually to our supplying the remaining slab required by the joint venture. This is a great opportunity, and we have structured a deal that allows ArcelorMittal to capture the value without any significant impact on our consolidated net debt. This was important, as we remain committed to our medium-term financial targets.

Now turning to the strategic and investment logic behind this transaction… The investment logic is clear. ArcelorMittal is one of the leading steel suppliers to NAFTA automotive, and this expands and develops our position to supply this demanding market. The automotive market has recovered strongly post-crisis. According to the LMC Automotive forecast, NAFTA auto sales are expected to grow by a further 15% over the next decade. This growth is really coming from Southern U.S. and Mexico for this new facility in Alabama is ideally located to service this group. Calvert has state-of-the-art hot-strip mill, which is ideally suited to the production of advanced high-strength steels, which we have been developing as solutions for automotive.

Additionally, this acquisition will significantly enhance ArcelorMittal’s position to supply steel to the growing NAFTA energy market. Increasingly, the pipe makers are demanding high-strength coils with outstanding surface properties, exactly what Calvert is designed and able to produce. Calvert is perfectly located to serve this growing market in the Gulf Coast region.”

Aditya Mittal, Chief Financial Officer for AM told the analysts, “…we do expect to have an immediate impact on the performance of the Calvert plant and its success in the marketplace.”

He outlined the slab supply agreement which allows for 2 million metric tons of slabs to come from the ThyssenKrupp CSA mill in Brazil and the balance of the slabs (about 2.3 million metric tons when the mill is running at full carbon flat rolled capacity) would come from AM facilities in Mexico, USA and Brazil. This is the first reason why they expect to have an immediate impact on the Calvert, Alabama plant.

AM believes that through having slabs available out of USA and Mexican mills they will be able to run shorter lead times for customers such as service centers who look for quick turn-a-round. The longer lead time items such as automotive can use the Brazilian slabs without impacting service.

Second, AM believes their relationships with NAFTA based customers will result in a quicker acceptance of the Calvert products in the marketplace.

The third reason they expect to do better than the existing plant is due to better quality and performance out of the facility once under their control. “We believe, as a result of these 3 factors, we will be able to more quickly realize the potential of Calvert and improve product sales to the targeted market.”

AM made it clear to the analysts that they were not targeting a ramp up in the capacity utilization rates at the Calvert, Alabama facility during year one. They also told analysts their existing facilities in North America were already running at high capacity utilization rates. The growth they expect is coming from the 50 percent increase in flat rolled carbon steel demand in NAFTA over the next 10 years.

AM pegged the 2012 run rate at Calvert at 2.8 million metric tons. They expect to maintain that run rate during their first year of operation. (Source: ArcelorMittal Conference Call Transcript)