“The significant decrease in global iron ore prices along with our existing capital structure has created a challenging business environment in the short term. The reorganization process will create a more competitive and successful company,” said Magnetation Chief Executive Officer Larry Lehtinen in a written statement.
An agreement for the reorganization has been reached with more than 70 percent of creditors, according to the Magnetation release. Plans are subject to approval by the U.S. Bankruptcy Court for the District of Minnesota.
Magnetation LLC owns iron ore concentrate plants located in Keewatin, Bovey and Grand Rapids, Minn; and an iron ore pellet plant in Reynolds, Ind. Due to cost-cutting efforts, the Keewatin plant has been idled, according to Magnetation.
AK Steel owns a 49.9 percent stake in Magenetation.
“Magnetation LLC was part of our overall raw materials vertical integration strategy to improve self-sufficiency and lower steelmaking input costs which had escalated dramatically from 2008 through 2011,” said Barry Racey, spokesman for AK Steel, in an email.
“The dramatic decline in the price of iron ore over the past year to pricing levels not experienced in more than a decade — which coincided with ramp-up of production capacity at Magnetation LLC’s pellet plant — proved to be too difficult for Magnetation LLC to overcome,” Racey said, noting that AK Steel has no requirements to, nor does it intend to, invest more in the venture.
Nor does AK Steel anticipate any impact on production levels or on the Butler County steelmaker’s ability to fill customer orders, James Wainscott, chairman, president and chief executive officer of AK Steel, told investors on an April 28 conference call to discuss quarterly earnings. However, there could be an impact on costs if AK Steel has to find other sources to replace the Magnetation pellets it buys now, Wainscott said.
“We expect to continue to receive pellets from Magnetation LLC in the short-term,” he told investors and analysts. “As for the longer-term, it’s certainly possible that the challenges faced by Magnetation LLC could — let me emphasize could — result in a temporary or permanent disruption in their supply of iron ore pellets to the company.”
“We currently purchase pellets from multiple third-party suppliers and we believe, if need be, that we could replace the Magnetation LLC pellets with supply from existing or new third-party suppliers.”
The Fortune 500 steelmaker AK Steel Holding Corp. is headquartered in West Chester Twp. Between operations in West Chester Twp. and the Middletown Works steel plant, AK Steel employs approximately 2,400 full-time workers in Butler County, making it the county’s third-largest employer.
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