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Cleveland-Cliffs is bullish about its proposed $2.5 billion acquisition of Stelco, the former U.S. Steel Canada.
The deal may result in some orders from Cleveland-Cliffs' Northwest Indiana steel mills being handled in Canada instead, but the company said it will focus on growing its business in Canada with a new subsidiary. The Cleveland-based steelmaker has been in talks with union local leaders and other stakeholders as it seeks to close the deal that will expand its footprint into Canada.
"To all the USW-represented steelworkers of Stelco, we can't wait to start working with you soon. We have also been in constant conversations with political leadership at the provincial and federal level to advance a quick resolution and a quick closing,"Chairman, President and CEO Lourenco Goncalves said in a recent conference call with investors. "And we are grateful for the warm welcome we have encountered from everyone in Canada. It's clear to us that all key stakeholders recognize the net benefit we will provide to the Province of Ontario and to Canada. Ontario is a great place to do business and we are convinced that the acquisition of Stelco by Cleveland-Cliffs will further improve the natural connection and the healthy partnership between Canada and the United States."
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Stelco generated more than $1.5 billion in earnings before interest, taxes, depreciation and amortization, or EBITDA, in 2021, with EBITDA margins of more than 50%.
"The blast furnace reline just a couple of years ago and the co*ke plant upgrades, including a brand new 115 megawatts core generation power plant fueled by captured and reutilized blast furnace gas, have made Lake Erie Works a very efficient steel plant, operating at a benchmark level in CO2 emissions," Goncalves said in the conference call. "By now, smart investors know that efficient blast furnaces are not going away. The technology is superior now and we will gain an even greater advantage in flat-rolled steel production as more and more EAFs are built and fight over a shrinking pile of prime scrap. As the steel market improves, as it always does, Stelco will demonstrate its great potential."
The deal will give Cleveland-Cliffs more power in the marketplace, he said.
"End-user demand for flat-rolled products by-and-large is still pretty healthy. Yet certain service centers are drawing down inventory to below basem*nt levels and not buying at low replacement costs, big mistake. By the time our acquisition close later this year, I expect the market will be a lot more rational and a lot more favorable to Cliffs, boosted by the addition of Stelco to our footprint," he said.
Goncalves said the deal will not burden Cleveland-Cliffs with too much additional debt and will result in higher accretive earnings for the steelmaker.
"Stelco is extremely profitable and it will be even more profitable under our control. We are going to let them run. It will be a separate entity as a full-blown subsidiary. They will run their own thing," he said. "We're going to have controls over commercial and finance and that's pretty much it. And all the rest will be great. Synergies will be good for us down here at this side of the lakes. We are going to deploy some good orders that are now transitioning to Canada. We're going to supply from there because Canada to Canada is simpler than the United States to Canada, things like that. But by and large, it's extremely accretive."
Recent acquisitions have caused Cleveland-Cliffs, which has been supplying iron ore to steel mills since 1847, to grow tenfold in size, delivering more value to shareholders, he said.
"This is a great acquisition that will be a game-changer as much as AK Steel was a big game-changer, transforming Cliffs, a mining company into Cliffs, the steel company," Goncalves said. "So big-picture is good. Cliffs was a $2 billion in revenues company not too long ago. Now, we're in the $20 billion to $22 billion range of revenues. That's a lot of growth and it's a lot of potential to be explored on behalf of the shareholders."
A look back at Northwest Indiana businesses that closed in 2023
A look back at Region businesses that closed in 2023
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