LUXEMBOURG - An Asian-based consortium is acquiring a 15 per cent stake in Montreal-based ArcelorMittal Mines Canada for $1.1 billion in cash.
The transaction will see a group led by South Korean steelmaker Posco and China Steel Corp. enter into a joint venture partnership that will own ArcelorMittal's Labrador Trough iron ore mining and infrastructure assets in Quebec's northern region.
The consortium also includes other investors, who were not identified in the announcement.
As part of the deal Posco and CSC will enter into long-term iron ore supply agreements.
"This joint venture, incorporating a long-term off-take agreement, is consistent with our strategy to forge strategic relationships with key customers as we build our global mining business," said Peter Kukielski, ArcelorMittal's chief executive for mining.
"The consortium will be an excellent partner as we pursue further expansion at AMMC," added Kukielski, who is also a member of the group management board.
The deal, announced by the company's Luxembourg-based parent, is subject to various closing conditions, including regulatory clearance by the Taiwanese government. It is expected to close in two instalments in the first and second quarters of 2013.
Reports that ArcelorMittal was looking to sell a minority ownership stake in its Quebec iron ore assets had been circulating since last fall.
While observers cited low prices and weak Chinese demand as drivers behind such a move, conditions have since changed. Iron ore prices have risen almost 70 per cent since hitting a three-year low last September and Chinese demand is expected to surge in 2013.
In October, ArcelorMittal slashed its dividend as it slid into a third-quarter loss on the back of a slowdown in China.
Arcelor also said it was committed to reducing its debt and increasing its productivity and efficiency. The Luxembourg-based steel and mining giant saw its debt increase by $1.2 billion during the third quarter, to $23.2 billion, because of negative operating cash flow.
The steelmaking giant has a portfolio of more than 20 mines in operation and development and the reports said the company had been prepared to sell up to a 30 per cent stake in its Mont Wright mine in Quebec, acquired as part of its 2006 takeover of Dofasco.
Industry analysts said attracting partners could help fund ArcelorMittal's (NYSE:MT) plans, announced last May, to spend $2.1 billion to expand annual production to 24 million tons from 14 million tons by 2013 at the facility near Labrador.
Asian steelmakers would be interested because they are looking to secure raw materials. And although costs to ship ore from Canada to Asia are higher than from Australia, they are manageable, analysts said.
ArcelorMittal is a leading integrated global steel and mining company, with a presence in more than 60 countries.
In 2011, ArcelorMittal had revenues of $94 billion and crude steel production of 91.9 million tonnes, representing approximately 6 per cent of world steel output.
ArcelorMittal shares closed up 38 cents, or 2.18 per cent, to US$17.85 Wednesday in New York.
Earlier on HuffPost:
Here are five things to know about Canada's investment treaty with China which is expected to be ratified next week:<br> <strong><em>With files from CBC</em></strong>
5. Growing Investment From China
This FIPA is different from other FIPAs due to the sheer amount of investment China already has in Canada, said Gus Van Harten, an international investment law expert and associate professor at the Osgoode Hall Law School at York University, in an interview with CBC Radio's The House. Van Harten explained, the FIPAs Canada has in force are typically with countries who don't own major assets in Canada. However, under this treaty, Van Harten said Canadian taxpayers will assume "more of the risks and more of the constraints" than their Chinese counterparts to the degree that Chinese investments in Canada outpace Canadian investments the other way.
According to Van Harten, the deal doesn't deliver on market access and investor protection. "We come out on the losing side on both," said Van Harten. "We should insist on reciprocity. The treaty does not allow for market access except under the exisiting legal framework of each country." The problem with that, Van Harten said, is Canada's legal framework is "more open and less opaque" than China's existing legal framework which will benefit China more than it will benefit Canada.
3. Impact On The Provinces
Under this treaty, the investor-state mechanism is such that China could sue for decisions made by any level of government in Canada, if Chinese companies thought they were not being treated the same as Canadian ones. In other words, this deal could undermine the provinces "bargaining power," said Van Harten because "this very powerful arbitration process operates outside of the Canadian legal system and Canadian courts." Arbitration would happen behind closed doors, said Van Harten and if the arbitrators found Canada at fault, Canadian taxpayers could be left footing the bill. Several countries have already faced stiff punishment under such treaties. This, according to Van Harten, also calls into question whether the treaty is unconstitutional or not.
2. Opposition Parties
The Opposition New Democrats, Liberals and Greens are all calling on the federal government to study and debate the agreement instead of ratifying it and locking it in for the next 31 years without public consultation – as they can do. In an interview with CBC Radio's The House on Saturday, NDP MP Don Davies, who serves as the international trade critic, told host Evan Solomon that if the federal government ratifies the agreement as it is now, it will have "frozen in time a very lopsided deal." Davies said they have "received 60,000 emails in the last two weeks from Canadians who are concerned about this deal."
The federal government insists "this agreement includes reciprocal obligations" and is good for Canada, said the Conservative MP who tabled the FIPA with China. Also in an interview airing on CBC Radio's The House, Deepak Obhrai, the Parliamentary Secretary to the Minister of Foreign Affairs, said this FIPA with China "levels the playing field" between the two countries. Obhrai told Solomon, this agreement "give assurances to Canadian businesses that their investment in China is protected and they can do business in China because this is a deal that is open and treats our companies in each other's country on equal terms." The question we should all be asking ourselves Van Harten said, is "has Canada conceded something now that we were not prepared to concede under previous governments?" And according to Van Harten, the answer is "it's quite possible."