The company’s move to restart operations at the Liberia mine in 2009 set to maximise profits.
Two watchmen, taking shade from the equatorial sun under the arm of a rusting electric earth mover, are guarding the future of ArcelorMittal, the world’s largest steelmaker.
The men, clad in faded cotton shirts, survey a 50-story pyramid of earth marking the Nimba iron-ore mine in Yekepa, Liberia. ArcelorMittal plans to reopen the operation in 2009. The mine was abandoned in 1992 as civil war engulfed the nation.
Liberia is the centre of ArcelorMittal’s strategy to boost profits by producing its own ore. The company, reacting to a fivefold jump in costs since 2001, is scouring the globe for deposits and plowing $6 billion into nations such as Senegal and Mauritania with histories of civil strife. Liberia was torn by mortar fire and reports of ritual killings five years ago.
Twenty-one months after Mittal bought steelmaker Arcelor for $38.1 billion, the company’s goal is to develop overlooked mines to break the grip of the three largest ore producers, BHP Billiton Plc, Rio Tinto Plc and Brazil’s Cia Vale do Rio Doce.
“Few companies are as driven to expand their captive iron— ore supplies as ArcelorMittal, which stands to gain competitive advantage from its efforts,” says Michelle Applebaum, who runs a steel research firm that carries her name in Highland Park, Illinois, and has a “buy” rating on the stock. “ArcelorMittal is far more aware than most that controlling your own destiny means controlling your own iron ore.”
Increasing Production: BHP, Rio and Vale control about 80 per cent of seaborne trade in iron ore, and Luxembourg-based ArcelorMittal agreed in April to pay Vale 87 per cent more for ore as demand surges in China. ArcelorMittal plans to produce 80 per cent of its ore in the next decade, up from 45 per cent now, to maximise profits from US steel prices that are at a record-high $1,068 a ton.
The company may save billions of dollars a year, says Charles Bradford, a mining analyst at Soleil Securities Inc in New York who has followed mining companies for more than 25 years and rates ArcelorMittal a “hold.” The precise benefits won’t be known until production proceeds, he says.
ArcelorMittal’s $1.5 billion Liberia investment is aimed at trimming costs to end earnings swings that can weigh on its stock.
The company’s shares gained 23 per cent in the 12 months ended August 14, outperforming a 7.2 per cent decline in the Bloomberg World Iron/Steel Index. Vale, based in Rio de Janeiro, rose 2.8 per cent, while Melbourne-based BHP’s London-traded shares climbed 10 per cent and London-based Rio Tinto gained 51 per cent in that time.
Civil War Wreckage: “Most people look at ArcelorMittal as a steel company and ignore that it’s 45 per cent integrated in iron ore and going to grow that significantly,” says Sanford C Bernstein & Co analyst Andrew Keen in London, who has an “outperform” rating on the shares.
Among the largest steel producers, ArcelorMittal leads in raw materials exploration. Tokyo-based Nippon Steel Corp and JFE Holdings Inc, the world’s second- and third-largest steel companies, rely on imported ore. The companies need to invest in exploration to reduce costs, Masaki Ishikawa, director of the iron and steel division at Japan’s Ministry of Economy, Trade and Industry, said July 22.
“We as the steel industry should not have so much market dominance on the raw materials side,” says Malay Mukherjee, ArcelorMittal’s former head of mining and a member of its board.
The risk of ArcelorMittal’s strategy is visible in Liberia, where a 14-year civil war left potholed roads, a dearth of power plants and an unemployment rate of 85 per cent.
