Essar Global buys Minnesota Steel

MUMBAI: Essar Global, the holding company of the Ruia empire, late on Wednesday night announced the acquisition of the US-based Minnesota Steel for an undisclosed sum.

Essar Global will invest $1.65 billion to set up a steel plant in the American company’s facilities. Sources, however, said the deal value could be close to $100 million.

The acquisition will be done through the holding company’s wholly-owned subsidiary Essar Steel Holdings. The group had earlier this week acquired Canadian steel company Algoma Steel for $1.58 billion.

The privately-held Minnesota Steel controls iron ore resources of over 1.4 billion tonnes. The steel plant, whose construction is expected to begin in the third quarter, will have a capacity of 2.5 million tonne per annum. “The steel plant will be built in phases, with the first phase expected to go on stream in 2009 and produce up to 1.5 million tonnes of thick steel slab per year,“ said an Essar Global statement.

Though Essar Steel officials were tightlipped on the financial and other details, the acquisition is believed to be more about getting hold of precious iron ore reserves when prices are ruling at all-time high levels. Minnesota’s Mesabi Range is one of the world’s largest iron ore mining regions.

“Together, Minnesota Steel and Algoma Steel form the cornerstone of Essar’s North American strategy, in line with the global steel vision of having world class low-cost assets with a global footprint,” said the statement. The latest deal comes after Tata Steel acquired Corus for $12.9 billion and Hindalco Industries snapped up Novelis for almost $6 billion earlier in the year.

With US and Canadian companies facing cost challenges and a slowing auto industry, most of them are looking out for suitors from low-cost producing countries. Essar Global, with Algoma’s acquisition, already has control over capacity of over 7 mtpa. With Minnesota’s proposed steel plant project, the combined capacity will be within touching distance of the 10 mtpa-mark.

Essar Global chairman Shashi Ruia said, “Our investment in Minnesota Steel is exciting as it gives us a cornerstone in the North American market. From this, we will expand our global steel business further.” He added that Minnesota’s iron ore reserves will help the company “be one of the low cost producers of steel in the world.”

The American company’s chairman, Jospeh Bennett, said: “Essar brings remarkable experience and expertise in Direct Reduced Iron (DRI)/Electric Arc Furnace (EAF) steel-making.”