Arcelor Mittal Continues Its Iron Ore Pursuit

MT: Arcelor Mittal logo
Arcelor Mittal

ArcelorMittal (NYSE:MT) continues its pursuit for iron ore in order to lower its dependence on third-party raw material suppliers of iron ore and coal. The move aims to improve the overall profitability of its operations. In a recent letter of intent sent to the Serb Republic Industry, Energy and Mining Ministry, ArcelorMittal has expressed its interest to increase its existing 51 percent stake in the Bosnia’s Prijedor iron ore unit by acquiring the state owned shares in the company. [1] ArcelorMittal, the world’s largest steel manufacturing company, was formed in 2006 by the merger of two steel giants Arcelor and Mittal. The company competes with other international steel manufacturing companies like BaoSteel, POSCO (NYSE:PKX), Nippon Steel, Tata Steel and U.S. Steel (NYSE:X).

Our price estimate for ArcelorMittal is at $22, which is approximately 15 percent ahead of the current market price.

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See our full analysis for ArcelorMittal Here

The Prijedor iron ore unit (also known as ArcelorMittal Prijedor) is a joint venture, wherein ArcelorMittal holds 51 percent stake and the remaining stake is held by the state-owned Ljubija iron ore mines. The Serb Republic government 70 percent stake in Ljubija iron ore mines is owned by the rest is owned by investment funds and small shareholders. Ljubija iron ore mines is currently valued at $33.5 million.

As per ArcelorMittal Prijedor’s estimates, it would produce 1.85 billion tons of iron ore in 2011, up 30 percent from 2010. Iron ore from the unit is supplied to Bosnia’s sole steel maker ArcelorMittal Zenica.

The steel unit estimates its 2011 production at a healthy 650,000 tons and expects the output to rise by 10 percent in 2012 due to strong domestic demand. Therefore, it makes perfect sense for ArcelorMittal to increase its stake in the Prijedor iron ore unit to offset the input costs of iron ore. Growing pressure on profit margins due to the rising cost of raw material has made ArcelorMittal aggressively develop, expand and acquire iron ore and coal resources.

In one of our older posts on ArcelorMittal, we also detailed its plans to acquire ATIC Services Group, which provides shipping services for iron ore and coal imports in some areas of the European Union.

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  1. Arcelor set to up stake in Bosnia iron ore mines, Reuters []