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ArcelorMittal’s HBI Facility Stake Buy Strengthens Decarbonization Efforts

Global steel and mining company ArcelorMittal S.A. (MT) has agreed to acquire an 80% stake in Voestalpine’s Hot Briquetted Iron (HBI) facility in Texas. The remaining 20% stake will be with Voestalpine. The deal values the Corpus Christi operations at $1 billion.

In tandem with this stake buy, ArcelorMittal has also entered into a long-term off-take agreement with Voestalpine, and will provide an annual HBI volume proportionate to Voestalpine’s stake to its two mills in Austria. The rest of the production will be delivered to existing supply contracts and to ArcelorMittal facilities.

The Texas plant has an annual capacity of two million tonnes of HBI. HBI is a compact form of Direct Reduced Iron (DRI) and overcomes the challenges related to shipping and DRI handling.

Management Weighs In

ArcelorMittal CEO, Aditya Mittal, said, “This is a compelling strategic acquisition for our company. It accelerates both our progression into producing high-quality metallic feedstock for EAFs and our global decarbonization journey. The facility is world-class and is ideally located, with its own deep-water port. There is also unused land on the site which provides interesting options for further development.”

Over the past 12 months, ArcelorMittal has propelled its innovative-DRI strategy. It has announced projects for additional DRI and electric arc furnace (EAF) capacity at its Belgium, Canada, France, and Spain operations for a combined investment of $5.6 billion. The move will help the company lower its carbon emissions by about 19.5 million tons.

Analyst Take

Credit Suisse analyst Carsten Riek has reiterated a Buy rating on the stock while increasing the price target to $50 from $42. Overall, the Street has a Moderate Buy rating on the stock based on a Buy and a Hold each. The average ArcelorMittal price target of $50 implies a potential upside of 52.8%.

Closing Note

The transaction highlights ArcelorMittal’s focus on decarbonization as DRI plays a role in decarbonization and the company plans to construct DRI facilities at multiple sites across Europe and Canada.

While the acquired Texas facility presently uses natural gas, it has the potential to completely transition to hydrogen. Importantly, ArcelorMittal aims to lower its CO2 emissions by 25% by 2030 across the group and in Europe by 35% by 2030.

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