Land buy signals Stelco steelmaking expansion
Transaction expected to provide greater security for employees and retirees
STELCO WANTS TO BUY thousands of acres of industrial property in Hamilton and Nanticoke in a bold move to expand steelmaking operations and create a new revenue stream for pensioner benefits at the same time.
On Monday, the company received court approval in Toronto to proceed with a $114 million plan that would see Bedrock Industries-owned Stelco move from being a tenant to becoming an owner of 287 acres of property on Hamilton’s Bayfront and 2,330 acres at its Lake Erie Works operation.
In addition, Ontario Superior Court Justice Herman Wilton-Siegel approved an order giving Stelco authority to pursue taking over 480 additional acres of currently unused land on what used to be Stelco Hilton Works property.
“Of course it is great news that the new Stelco is so confident of its future that it wants to own rather than lease the land,” said McMaster University business professor Marvin Ryder. “It is good news for the pension fund as it gets another injection of cash to improve solvency.”
United Steelworkers Local 1005 president Gary Howe said he is pleased with land acquisition plans because it means tens of millions of dollars in new funds to pay for pensioner health care benefits in the future. There had been concerns of insufficient funds from 2028 to 2038.
The move is also significant because:
• The expanded Stelco footprint on
Of the $114-million purchase price, the Hamilton properties comprise nearly $70 million.
the Bayfront will take in the company’s abandoned blast furnace that was idled more than six years ago. Observers say this is a strong signal of serious plans to make the historic decision of firing up the facility and resuming steelmaking in Hamilton. That could cost $50 million and would create hundreds of jobs. Asked early last month about plans to restart the blast furnace, Stelco CEO Alan Kestenbaum said: “We are not in a position to comment on that at this particular time.”
• It means the company is sticking its neck out when it comes to environmental liability. The restructured Stelco that exited bankruptcy protection last summer under Bedrock ownership had with it the creation of a land trust to own all the industrial property. It meant the new Stelco became a tenant and did not have to worry about a potential bill at a later date for environmental cleanup of historic pollution. The land trust, backstopped by the province, was on the hook for that. To toss that protection out shows great faith in the future.
• If the property is being used for steelmaking, it is not available for other things. The City of Hamilton and the Hamilton Port Authority had been eyeing the land for future development of something other than steelmaking. Now, under the Stelco purchase plan, instead of more than 520 acres being available for development there are only between 40 to 50 acres, a much smaller business opportunity. City manager Chris Murray said he is trying to arrange a meeting with Bedrock officials “to discuss their future plans and how they align with the city's interests.”
• The change in ownership of the land, and an increase in steelmaking activity, will likely lead to an upward reassessment of the land for tax purposes which will mean more tax revenue for the city. The Municipal Property Assessment Corporation controversially downgraded the tax value of 375 acres of the industrial harbour lands late last year, citing new evidence of historical contamination and past failed sales attempts. The decision left a $2-million hole in the city's expected tax revenues for 2018, or an effective $8 tax hike for the average homeowner.
• It comes at a time when Canada’s steelmakers are under siege by American President Donald Trump who last week imposed a 25 per cent tariff on steel brought across the border to the U.S. As well, the talks to renegotiate a NAFTA are stalled and create further uncertainty. Yet somehow Stelco seems undeterred in its expansionist plans for Hamilton.
The company would not comment Monday about its land acquisition plans or anything else.
Raj Sahni, one of the lawyers representing court-appointed monitor Ernst & Young, told court Stelco intends to use the Hamilton land for steelmaking operations.
“This transaction results in greater security and funding to the ELHTs (employee life and health trusts) and pension plans,” Sahni told the judge, “and expanded steelmaking in Hamilton, which benefits the employees and the community of Hamilton.”
A lawyer for Stelco’s nonunion employees and retirees told court the proposed deal was a “complex transaction” that will be good for Stelco retirees.
“This is a positive restructuring of the company,” said Andrew Hatnay, which is “viewed by the stakeholders as a desirable transaction to complete.”
Howe, from Local 1005, was happy with the news. “Things are starting to look a lot more positive for the retirees and the employees,” said Howe, who attended Monday’s court hearing in Toronto. “It’s all more jobs, it’s all excellent stuff.”
Howe said he believes that the “steelmaking operations” reference doesn’t necessarily mean the company’s idled blast furnace will be fired back up. It could mean more finishing work for steel products.
“A lot of it is dependent on what happens with the tariffs,” Howe said.
Sahni told court the purchase price for the lands was determined by an independent valuation. The city was listed as one of the 17 respondents in Monday’s court action, but there did not appear to be any representative from the city among the 19 lawyers and officials in attendance.
“I think they realized it was a done deal,” Howe said.
The land purchase agreement, when completed, will see the current landowners holding a vendor take-back mortgage with 8 per cent annual interest over a 25-year period.
The deal will provide more guaranteed money for pensions and benefits from the 11th year of the deal through year 25, according to Howe.
“Before this, a lot of the money was tied to profit and cash flows of the company,” he said.