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NLMK Acquires Full Control over Rolling Assets of Duferco JV

04/22/2011 - NLMK has signed definitive agreements to purchase a 50% interest in Steel Invest and Finance (SIF) from Duferco Group. The transaction will result in SIF becoming a 100% owned subsidiary of NLMK.

NLMK has signed definitive agreements to purchase a 50% interest in Steel Invest and Finance (SIF) from Duferco Group for an all cash consideration of c$600m, payable in four equal annual installments. The transaction will result in SIF becoming a 100% owned subsidiary of NLMK.
 
The company will finance the transaction out of existing cash funds. The transaction, subject to customary regulatory approvals in the EU, is expected to close in Q2 2011.
 
NLMK notes that the transaction will significantly enhance its international downstream portfolio through the integration of seven rolling and several distribution facilities with total rolling capacity of more than 5.5 million tonnes per annum (tpa) and 2010 combined output of 3.2 million tpa.
 
At the closing of the transaction, SIF will transfer to a Duferco company certain non-core assets consisting of long products operations of 0.3 million tpa capacity and an electric arc furnace with 0.9 million tpa of steelmaking capacity. It also will transfer to a shareholder of Duferco the Belgium-based Carsid steelmaking operations with 2.1 million tpa slab capacity.
 
As part of the consideration for the transfer of the non-core assets, SIF will cancel approximately €230 million of Duferco shareholder loans.
 
NLMK believes this move will reinforce its positions as a supplier to its core markets in Western Europe and the U.S. Among other benefits, this acquisition will enable the company to:
 
  • Secure further processing and distribution of crude steel (slabs) to be produced with the commissioning of the new 3.4 million tpa BF in Lipetsk, Russia, in 2011
  • “Significantly increase” global finished steel capacity with an emphasis on automotive, energy, and machinery building industries in the European and North American markets
  • Increase the speed and quality of supply of finished products to the European and American customers
  • Mitigate risks associated with concentration on one single product (slabs) and single market (S.E. Asia)
  • Improve quality of earnings and deliver significant growth in turnover and cash flow.
 
Alexey Lapshin, CEO of NLMK, said: “NLMK is actively growing its business, and this acquisition is in line with our strategy to deliver sustainable long-term growth. This move makes us a truly global steel player with a footprint in three continents, positioned to exploit geographic advantages. Our mining and steelmaking operations are located in one of the best places to produce crude steel efficiently while the rolling assets are now located in close proximity to our key clients. Such a combination can allow cost advantages to be leveraged across the value chain.
 
“Since the formation of the JV we have been growing our sales to the acquired rolling assets, and this was one of the factors that allowed us to achieve 100% utilization rates of our Russian operations in the midst of the crisis in 2009. Now those assets provide us with an opportunity for an increase of value-added flat rolled products’ sales after the launch of the new Blast Furnace in Lipetsk later this year.”