ArcelorMittal Hedges Business Risk And Targets Growth With Mining Expansion

by Trefis Team
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ArcelorMittal
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ArcelorMittal‘s (NYSE:MT) board of directors has approved the expansion of iron ore mining capacity in Liberia from 4 million tonnes per year to 15 million tonnes per year. This capacity will be achieved in 2015. [1]

Recognizing the growth potential and also to hedge against rising prices of major raw materials like iron ore and coal, ArcelorMittal has consciously been realigning its focus on mining. The company is projecting growth in iron ore output to 84 million tonnes in 2015 from 56 million tonnes in 2012. [2]

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The investments will be carried out to build an iron ore concentrator, expand the port facilities in Buchanan, and increase utilization of rail capacity. The iron ore concentrator will be built at the mine site in Yekapa to produce iron ore pellets which are used exclusively by steel makers. The Buchanan port will get a new fixed ship loader that will have a loading capacity of 6,000-8,000 metric tonnes of iron ore per hour. The company has already invested $1 billion in the country so far, including the money spent on construction of schools and hospitals in areas where it operates. For the new investments approved by the board, however, ArcelorMittal refused to provide numerical estimates. [3]

ArcelorMittal’s Iron Ore Mining Business

ArcelorMittal has a global portfolio of 16 operating units with mines in operation and development and is among the largest iron ore producers in the world. At the end of 2012, ArcelorMittal’s iron ore production from its own mines and through strategic contracts stood at 68.1 million tonnes and met 61% of the company’s iron ore requirements. The production from its own mines constituted 55.9 million tonnes of the total. [4]

The company’s main mining products include iron ore lump, fines, concentrate and pellets. As of December 31, 2012, ArcelorMittal’s iron ore reserves were estimated at 4.3 billion tonnes. Its long-life iron ore resources provide a measure of security of supply and an important natural hedge against raw material volatility and global supply constraints. Since January 1, 2011, the mining business has become a separate reportable segment in ArcelorMittal’s financial statements. This enhances the ability to optimize capital allocation and pursue growth plans, which include a material increase in production and sales to third parties at market prices.

ArcelorMittal aims to increase iron ore shipments in 2013 by approximately 20% from the previous year’s level of 28.8 million tonnes to reach 34.5 million tonnes. This will be achieved by expanding production at its Liberian and Canadian operations. The Canadian operations alone are expected to yield 24 million tonnes of iron ore in 2013. As the company expands mining capacity through investments in lower cost operations, it expects the operating cost per unit to come down significantly by 2015. [5]

We have a price estimate for ArcelorMittal of $15, which we will soon revise to incorporate the fourth quarter earnings results.

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Notes:
  1. ArcelorMittal to take Liberia ore capacity to 15 MT by 2015, Economic Times []
  2. Macquarie Global Metals and Mining Conference, ArcelorMittal Website []
  3. ArcelorMittal announces approval of phase two of Liberia iron ore project, SteelOrbis []
  4. ArcelorMittal 2012 20-F, SEC []
  5. ArcelorMittal Expects 20% Rise In Iron Ore Shipments in 2013, SteelOrbis []
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