MELBOURNE (Reuters) - GFG Alliance said on Monday it would build a 10 million tonne-per-year (tpy) steel plant in the state of South Australia that would likely be funded in part by government subsidies.
The new mill, relying on infrastructure from a bankrupt plant in the town of Whyalla, will focus on the production of steel slab, blooms and billets for export, and will provide "thousands of jobs," GFG Alliance said in a statement.
"Today's announcement signifies a major milestone in the Whyalla Transformation Program that will establish our operations as a viable and sustainable facility, producing 1.8 million tonnes of high-quality, high‐end steel per year," Executive Chairman Sanjeev Gupta said in a statement.
The British industrials group has been snapping up troubled steel and aluminium plants all over the world. It signed a deal to acquire U.S.-based steel wire producer Keystone Consolidated Industries for $320 million earlier this month.
For the South Australian plant, the privately-held conglomerate has signed contracts worth A$600 million ($432 million) with Italian heavy equipment maker Danieli <DANI.MI> for a mill, and China's CISDI engineering, a unit of state enterprise MinMetals [CHMIN.UL], for a blast furnace, it said.
The investments would be financed by funding sources including the group's own resources and vendor finance, and would "likely require support from the South Australian and Federal Governments," Gupta added.
GFG also plans to list up to 40 percent of its manufacturing, distribution and recycling business in Australia next year, a spokesman told Reuters last month.
The plan to invest in the plant comes as the Australian dollar returns to its long-term average compared with elevated levels seen during the commodities boom, which triggered a large-scale exodus of metals producers and manufacturers, said analyst Lachlan Shaw of UBS in Melbourne.
"The Aussie was very high which meant that the carmakers couldn't compete because imported cars were cheap. The carmakers left, the steel plants closed, the aluminium plants closed," Shaw said.
As the United States has rolled back its quantitative easing program, and China's commodities demand notches down a gear, a lower Australian dollar suggests the plant may be able to sustain where others have failed, he said.
"The Aussie is at a different level now and imported steel is also more expensive on a local currency basis compared to five to six years ago."
The Australian dollar traded at 72 cents against the U.S. dollar on Monday, down from a boom-time peak of 1.1080 in 2011.
The new steel plant will have access to Australia's ready and vast resources of iron ore and steel-making coal. And GFG via its subsidiary Zen Energy has been building a renewable power hub nearby that could help cut power costs.
The plant will be designed, built and commissioned over the next two to four years. GFG is also considering building a copper smelter, it said.
(Reporting by Melanie Burton; Editing by Tom Hogue)
