Steel giant ArcelorMittal (NYSE:MT) is envisaging further expansion of iron ore production at its Canadian mine to 30 million tons and will conduct a feasibility study for it.  The company is looking aggressively to make inroads into mining in the wake of current economic conditions. The world’s largest steelmaker has a variety of flat products such as sheets and plates as well as long products including bars and rods in its product portfolio. Its major competitors are steel giants like U.S. Steel (NYSE:X), POSCO (NYSE:PKX) and Tata Steel and mining giants such as Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE).
Our price estimate for ArcelorMittal stands at $23, implying a premium of about 35% to the current market price.
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Iron Ore To Drive Growth in the Future
A stronger outlook, better margins and reduced dependency on third parties are factors that make ArcelorMittal attractive. Realizing the potential, the company is eying to expand output to 30 million tons in Canada, which is already undergoing expansion from the existing 16 million tons to 24 million tons annually.
In 2011, ArcelorMittal produced about 15 million tons of iron ore in Canada from the total production of about 50 million tons, a number which we expect to rise with the existing expansion plans and new mining project developments.
Going forward, we expect that growing iron ore demand from emerging markets could create supply issues. Therefore, it seems a logical step for ArcelorMittal to safeguard its production and shipments by ensuring the availability of raw materials at good rates. In a recent article, we discussed how this backward integration will help Arcelormittal reach $23. Accordingly, ArcelorMittal is also expanding its coal mining facilities for the same reasons.Notes:
- ArcelorMittal studying a further expansion of its Quebec iron ore mine, Canadian Business, April 26 [↩]