Earlier this week, ArcelorMittal (MT) signed a definitive agreement to divest its minority interest in Wabush Mines, Canada, for $34.28 million. ArcelorMittal’s 28.6% stake in the Wabush Mines joint venture is being sold to Consolidated Thompson Iron Mines Ltd. Consolidated Thompson plans to finance the transaction with existing cash and credit facilities. Other terms of the transaction were not released.

ArcelorMittal’s stake in Wabush Mines is no longer a core part of the company’s mining strategy. The mine represented 31 million tons of iron ore reserve and 1.2 million tons of iron ore produced for ArcelorMittal in 2008.

After the disposal, ArcelorMittal continues to have significant mining operations and resources in Canada including ArcelorMittal Mines Canada, formerly Quebec Cartier Mining. Canada also remains an important jurisdiction for ArcelorMittal’s future growth strategy in both mining and steelmaking.

ArcelorMittal expects a surge in steel demand in the coming months largely due to the technical recovery that is taking place as inventory de-stocking nears completion. Although the steel sector scenario remains unpredictable, we also expect gradual sales recovery in the next couple of quarters. However, we do not expect demand to return to the levels of 2008 in the medium term.

A reversal of global economic activity triggered by the intensification of the credit crisis last September led steelmakers to stop operations at several plants, lay off staff and refinance debt. The U.S. steelmakers are still operating at almost half their capacity. According to the American Iron and Steel Institute, U.S. plant capacity is at 53.9%, below the 90.4% a year ago.

Global steel prices have fallen more than 70% in July in some regions from their peak in mid-2008, as a recession in three of the four major world economies demand reduced in sectors such as construction and automotives. We believe this will continue in the very near term.

Zacks Investment Research
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