By John W. Miller And Josh Beckerman
U.S. Steel Corp. said Tuesday its Canadian unit would apply for
bankruptcy protection, as the 113-year-old steelmaker seeks to stop
the bleeding after five straight years of losses.
The Pittsburgh-based firm, which faces challenges including
high-cost mills, labor liabilities, and competition from imports,
also said it was canceling over $800 million worth of expansion
projects in Minnesota and Indiana.
U.S. Steel Canada is seeking a court order allowing it to
operate while exploring restructuring alternatives. U.S. Steel
Corp. has agreed to provide 185 million Canadian dollars ($168.5
million) of financing to support current operations through the end
of 2015.
U.S. Steel said the Canadian business, which it has owned since
buying Stelco Inc. for $1.1 billion in 2007, has posted an
aggregate operating loss of about $2.4 billion in the last five
years. U.S. Steel Canada represents about $1 billion of U.S. Steel
Corp.'s consolidated employee-benefits liability as of June 30. The
restructuring would allow U.S. Steel Canada "to pay its suppliers
and employees and to continue to service its customers," said U.S.
Steel Chief Executive Mario Longhi.
The Brazilian, who took over from John Surma a year ago, has
vowed change, headlined by a program that would cut costs by $435
million in 2014, dubbed the "Carnegie Way", after steel baron
Andrew Carnegie.
Despite a lack of public detail on the cost-cutting, and a 2013
loss of $1.7 billion, the company's stock price has more than
doubled over the past 12 months.
U.S. Steel said Tuesday it would pull the plug on an expansion
of an iron ore-pellet operation in Northern Minnesota, which would
have boosted production there by 3.6 million tons a year to 9.6
million tons. In addition, U.S. Steel won't proceed with additional
investments for its carbon-alloy facilities at its Gary Works plant
in Indiana, which produce a substitute for industrial coke, which
is typically made out of coal.
The company "considered its future raw materials needs for iron
ore and coke, and found its current production capability
sufficient." Both iron ore and coke are ingredients in making steel
in blast furnaces, which U.S. Steel relies on, in contrast to
so-called minimills, which make steel out of scrap metal.
Together, these two projects were estimated to cost over $800
million, and combined with the Canadian restructuring, the
consequence of all three moves would be a noncash, pretax charge of
between $550 million and $600 million, the company said.
Mr. Longhi, a veteran of aluminum maker Alcoa Inc. and minimill
steelmaker Gerdau SA, has indicated he wants to move U.S. Steel
away from the traditional model of blast-furnace steelmaking.
Alternative iron and steelmaking technologies "are not affected by
these decisions," the company said Tuesday.
In a statement, Mr. Longhi said retrenching would allow the
company to spend more money on making lightweight steel for car
makers, special steels for gas drillers, and other capital
expenditures.
Mr. Longhi "is cutting his losses," said Charles Bradford of
Bradford Research Inc. "And he's pivoting away from their old
business model, but there are risks when you change so much, and it
will be interesting to see what happens."
The company also said Tuesday that steel-market conditions in
the U.S. have remained stable and its operations have performed
well, which are expected to result in higher-than expected
earnings, the company said.
Analysts expect earnings of around 90 cents a share in the third
quarter. Shares were up 7.5% to $44.50 in recent after-hours
trading.
Write to John W. Miller at john.miller@wsj.com and Josh
Beckerman at josh.beckerman@wsj.com
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