Steel maker AK Steel’s (AKS - Free Report) joint venture with Magnetation, Inc – Magnetation LLC – has successfully completed a senior secured notes offering worth $325 million and into a $50 million senior secured credit facility.
The proceeds from the offering of senior notes will be utilized to fund the new plant construction in Reynolds, Ind., for producing high-quality iron ore pellets, a key raw material for making steel. This new plant’s production will be supplied to AK Steel's blast furnaces situated in Ohio and Kentucky.
AK Steel holds about 49.9% stake in Grand Rapids, Minn-based Magnetation LLC, which produces iron ore concentrate from a previously mined ore stockpiles.
AK Steel’s strategic investment in the joint venture will provide it nearly 50% of its annual iron ore requirements starting 2015. Through this investment, AK Steel will enhance its raw materials self-sufficiency for steel making, gain greater control over its cost structure and lessen its exposure to the volatile global market for iron ore pellets.
In connection with the Magnetation financing completion, AK Steel has also provided $50 million to Magnetation as part of its planned remaining $150 million investment in the venture. So, out of a planned total investment of nearly $300 million, AK Steel has invested roughly $200 million in Magnetation. AK Steel has plans to contribute the balance $100 million in 2014 to support the construction of the new pellet plant.
The new pellet plant is under construction and is expected to be complete in around 18 months. Initial pellet production from the plant is expected to begin in the fourth quarter of 2014. The plant is expected to produce roughly three million tons of iron ore pellets annually once it is fully operational.
AK Steel currently maintains a Zacks Rank #3 (Hold).
Other companies in the steel industry worth considering are Ternium S.A. (TX - Free Report) , Angang Steel Company Limited (ANGGY - Free Report) and LB Foster Co. . While Ternium retains a Zacks Rank #1 (Strong Buy), Angang Steel and LB Foster hold a Zacks Rank #2 (Buy).