U.S. Steel grants Stelco option to buy 25% stake in Minntac; reports $391 million first-quarter loss

U.S. Steel grants Stelco option to buy 25% stake in Minntac; reports $391 million first-quarter loss

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Once complete, the 25% stake in the Mountain Iron mine and pellet plant will cost Stelco $600 million.Written By: Jimmy Lovrien | Apr 30th 2020 – 10pm.

Part of U.S. Steel's Minntac facility. (2015 file / News Tribune)

Part of U.S. Steel’s Minntac facility. (2015 file / News Tribune)

U.S. Steel on Thursday announced it granted Stelco the option to buy a 25% stake in its Minntac mine and pellet processing plant in Mountain Iron.

The announcement came as U.S. Steel, reeling from numerous layoffs and a drop in demand for its steel amid the COVID-19 pandemic, reported a loss of $391 million in the first quarter of 2020.

Hamilton, Ontario-based Stelco will pay U.S. Steel $100 million throughout 2020 and another $500 million by the end of January 2027 to obtain the 25% ownership stake in Minntac. Minntac would then operate as a joint venture between Stelco and U.S. Steel with U.S. Steel continuing to manage the mine.

“This agreement ensures U.S. Steel will continue to be the operator and majority owner of the Minntac mine and implies a $2.4 billion enterprise value for the Minntac operation,” U.S. Steel said in a news release announcing its first-quarter financial results.

Minntac is considered North America’s largest taconite mine and iron ore pellet processing plant. It’s capable of producing 16 million net tons of pellets per year and employed almost 1,400 people in 2018.

“This transaction represents a major milestone for Stelco as it secures a long-term supply of high-quality iron ore pellets and a highly valuable future option to acquire a 25% ownership interest in the Minntac Mine, one of, if not the, best assets on the iron range,” Stelco CEO Alan Kestenbaum said in a separate news release.

Stelco said it had also entered into a new eight-year pellet sale and purchase agreement with U.S. Steel until January 31, 2028. Pellets would supply Stelco’s Lake Erie Works in Nantcoke, Ontario. The deal replaces the existing agreement, which was sent to expire in January 2022.

A conference call with U.S. Steel investors detailing first quarter financial results is set for Friday morning.

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