ArcelorMittal is the largest steelmaker in the world. Moody’s downgraded Arcelor’s debt this week on account of a $34 B debt load and a faltering world economy. What does this portend for Arcelor’s Mary River project in Nunavut ?
ArcelorMittal currently operates 29 mining projects and in 2011 the company produced produced 54.1 million tonnes of iron ore. The company acquired Baffinland Iron Ore Mines, in partnership with Nunavut Iron Ore, and plans to develop the Mary River mine on Baffin Island in Nunavut. It’s a $6 B project that just received approval from the Nunavut Impact Review Board. The Baffinland project is key for Arcelor for 2016 onwards.
What attracts Arcelor is the high quality of ore. Baffinland Iron Mines holds a Tier 1 reserve, which is a very rare mineral deposit in the iron mining world. The mined product will be a direct shipping mix of 75% high-grade lump and 25% fines, it does not require processing or pelletising and will only need crushing and screening before being shipped to customers. Not having to process the ore means that no tailings containment will be required at the mine site, therefore reducing the scale of the operations needed on site. It is estimated that the deposit contains approximately 373 million tonnes of reserves. In addition to this deposit at Mary River, there are other iron ore resources on the property.
Lakshmi N. Mittal, Chairman and CEO of ArcelorMittal, commented: “The already fragile global economy was further impacted in the third quarter of 2012 by the slowdown in China. This resulted in very challenging operating conditions for ArcelorMittal, which are expected to continue in the fourth quarter. Against this backdrop, the Company is focussed on delivering its plan of asset optimization, net debt reduction and productivity and efficiency improvements.”
In the first 9 months of 2012 Arcelor’s net income was down to $0.3 B compared to $3.3 B in the first 9 months of 2011. The company generates about $1.8 B in net cash from its operating activities each year. ArcelorMittal is listed on major world exchanges and is headquartered in Luxembourg. It has assets of $130 B.
ArcelorMittal is proceeding with the giant Baffinland-Mary River project so far. This a huge integrated multi-national with the financial strength to carry out the project. Yet, the weak global economy shows through in the company’s financial results. Case in point, YTD net income down $3 B. Arcelor is running up against its debt covenants (3.5 times EBITDA), so it must reduce debt. There is a risk the company cancels or delays the Baffinland project as it continues to try to ameliorate its balance sheet.
Noteworthy: RanSquawk reported on 13-Nov-2012 that POSCO was considering an investment in ArcelorMittal Canada. POSCO is a huge Korean steel producer.