West Chester, Ohio-based AK Steel announced Monday that Magnetation LLC, its joint venture with Magnetation, Inc., has successfully completed a $325 million senior secured note offering and has entered into a $50 million senior secured credit facility. The proceeds from the note offering will be used primarily to fund construction of a new plant in Reynolds, Indiana to produce high-quality iron ore pellets. Production from the pellet plant will supply AK Steel's blast furnaces located in Ohio and Kentucky.
"We are excited to reach another milestone event in AK Steel's strategic initiative to become more self-sufficient in steelmaking raw materials," said James L. Wainscott, Chairman, President and CEO of AK Steel. "This transaction positions Magnetation well to continue on its path of accelerated construction of the pellet plant."
AK Steel's investment in Magnetation will provide the company with about 50 percent of its annual iron ore requirements beginning in 2015. By becoming more vertically integrated, AK Steel said that it will gain greater control over its cost structure, enhance its raw materials self-sufficiency, and benefit by significantly reducing its exposure to the volatile global market for this critical steelmaking input.
In conjunction with the completion of the Magnetation financings, AK Steel said that it has contributed $50 million to Magnetation as part of AK Steel's planned remaining $150 million investment in the joint venture. Thus far, AK Steel has invested approximately $200 million in Magnetation of a planned total of nearly $300 million. AK Steel plans to contribute the remaining $100 million during 2014 as needed to support the construction of the new pellet plant.
Construction of the pellet plant is underway and should be completed in about 18 months. Initial pellet production is anticipated during Q4 2014. When fully operational, the Magnetation plant will produce about three million tons of iron ore pellets annually.
AK Steel owns 49.9 percent of Magnetation LLC, a joint venture headquartered in Grand Rapids, Minnesota, which produces iron ore concentrate from previously mined ore reserves.
