Essar Steel to Invest $4 Billion to Expand in America

By Debarati Roy

Sept. 20 (Bloomberg) -- India's Essar Steel Holdings Ltd., which acquired Minnesota Steel Industries LLC last year, plans to invest $4 billion to expand its operations in North America.

The Mumbai-based steelmaker plans to invest $1.6 billion to develop an iron-ore mine and set up a steel plant in the region, it said in an e-mailed statement.

Essar Global, which owns 88 percent of Essar Steel Ltd., agreed to buy Canada's Algoma Steel Inc. last year for $1.63 billion to gain access to North American markets and supply the alloy to carmakers such as General Motors Corp.

``This expansion is in line with Essar's plan to build a strong base in the U.S.,'' said Sanjay Makhija, vice president at Mumbai-based Fortune Financial Service India Ltd. ``Also, Minnesota's iron ore reserves will help the company contain its steelmaking costs.''

Indian steelmakers are expanding abroad to secure access to raw materials. The price of iron ore, the main material used in steelmaking, has surged in the past five years, prompting companies including ArcelorMittal to seek greater control over supplies.

Minnesota has 1.4 billion tons of iron ore resources in the Mesabi range, the statement said. The company's iron-ore reserves are enough for about a century of production, based on planned output of 2.5 million tons a year of finished steel, John Elmore, Minnesota Steel's chief executive officer, said last year.

Essar plans to raise annual output to as much as 25 million tons by 2012. It will increase output at Canadian unit Algoma Steel to 4 million tons a year and is also building a 2.5 million ton plant in Trinidad and Tobago. The company has capacity to produce 4.6 million tons in India.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net