Cleveland-Cliffs to acquire Canadian steelmaker Stelco

It’s another major acquisition for Cleveland-Cliffs Inc.

And it may have an effect on North America’s largest taconite plant in Mountain Iron.

The Cleveland-based iron ore and steelmaker announced Monday it has entered into a definitive agreement to acquire Canadian steelmaker Stelco.

The deal is valued at about $2.5 billion.

Under the acquisition, Cleveland-Cliffs would acquire two Stelco Holdings Inc., (Stelco) facilities in Ontario.

“We did this deal the way it should be done, reaching a respectful agreement between the two parties that keeps national interests at the forefront and recognizes the importance of the workforce,” Lourenco Goncalves, Cleveland-Cliffs chairman of the board, president and chief executive officer said in a news release. “The enterprise value of this transaction is significantly lower than the cost of building an equivalent replacement mill in the United States, and the cost structure is lower than what a new U.S. mill would provide us. Stelco is a company that respects the Union, treats their employees well, and leans into their cost advantages. With that, they are a perfect fit for Cleveland-Cliffs and our culture.”

But the deal could also have an impact on the Iron Range.

Stelco for several years has held an option to buy 25 percent of United States Steel Corp.’s Minntac Mine in Mountain Iron.

In an investors call Monday, Goncalves said the 25 percent purchase option on Minntac Mine is part of the deal with Stelco.

“It has value and it was part of the package that we acquired,” Goncalves said. “Yes, as we go forward and close the deal, we will have that option.”

A 25 percent control in Minntac Mine would give Cleveland-Cliffs an even larger foothold in North American iron ore pellet production.

As the largest single iron ore pellet producer in North America, Minntac Mine has a capacity of about 16 million tons of iron ore pellets annually.

In northeastern Minnesota, Cliffs already owns and operates Minorca Mine near Virginia, United Taconite in Eveleth and Forbes and Northshore Mining Co. in Babbitt and Silver Bay.

Northshore Mining has been operating by Cliffs as a “swing” operation, producing iron ore pellets as needed, depending on the market.

Cliffs is also majority owner of Hibbing Taconite Co. where U.S. Steel is minority owner.

The recent relationship between the two iron ore and steelmakers could be defined as strained.

In recent months, Cliffs and U.S. Steel have exchanged some sharp words after U.S. Steel rejected an offer by Cliffs to buy all of U.S. Steel and instead chose to move ahead with a proposed merger with Nippon Steel.

Adding even more uncertainty, questions and potential conflict to the Cliffs-Stelco deal is that U.S. Steel’s Keetac taconite plant in Keewatin currently supplies iron ore pellets to Stelco, according to USW officials.

In Upper Michigan, Cliffs owns and operates Tilden Mine.

Stelco’s facilities to be acquired by Cliffs are the Lake Erie Works in Nanticoke and Hamilton Works in Hamilton.

Lake Erie Works is the newest, low-cost integrated steelmaking plant in North America, Goncalves said.

Hamilton Works is a finishing and cokemaking facility which would benefit Cliffs in supplying coke to Cliffs’ blast furnaces, Goncalves said.

The facilities combine to ship about 2.6 million tons of flat-rolled steel per year.

About 1,800 United Steelworkers (USW) members work for Stelco at the facilities.

David McCall, USW International president, has endorsed the deal.

“On behalf of our entire membership, I am excited for this transaction and proud to support a deal that is great for the resilience of manufacturing and Union jobs in North America,” McCall said. “Cleveland-Cliffs has a proven track record of making sure the Union always has a seat at the table, and this deal was no different. We are delighted to further expand our already great partnership between Cliffs and the USW.”

Stelco would retain its name, headquarters would remain in Hamilton and Stelco would operate as a wholly-owned subsidiary of Cleveland-Cliffs, according to Cleveland-Cliffs.

No layoffs would occur, but some reductions in Stelco management could result, Goncalves said.

It’s the third major acquisition for Cleveland-Cliffs in a little more than four years.

In December 2020, Cliffs completed a $3.3 billion deal to acquire ArcelorMittal USA.

In March 2020, Cliffs completed a $3 billion deal to acquire AK Steel.

The Stelco deal is expected to closed in the fourth quarter this year.

Stelco shareholders would receive $60 in cash per common share in Canadian currency and 0.454 shares of Cleveland-Cliffs common stock, an equivalent of $10 in Canadian currency under the deal, for a total of $70 per share Canadian, according to Cleveland-Cliffs.

The deal has been approved by both company’s boards of directors.

Approval by Stelco shareholders is still needed along the regulatory approvals and other customary closing conditions, according to Cleveland-Cliffs.

Stelco has a rocky history, filing in 2007 for bankruptcy before being acquired by U.S. Steel for $1.9 billion.

U.S. Steel then moved to temporarily idled Hamilton and most of the Lake Erie facility, affecting about 2,700 workers.

In 2014, court protection from creditors was filed.

The facilities in 2016 were sold to Bedrock Industries.

Today, Stelco operates as a independent company.

Goncalves said current management has turned around the facilities, creating an “amazing” environmental track record, producing steel at far below the average cost of American-made steel and in 2022 completing a major blast furnace re-line.

The deal would also create cost advantages for Cliffs in raw materials, energy, healthcare, and currency due to the exchange rate, according to Cleveland-Cliffs.

Acquiring Stelco was a “no-brainer,” for Cliffs, Goncalves said.

“When the opportunity became available, we had to pursue it,” Goncalves said.