Iron miner and steelmaker Cleveland-Cliffs will purchase a scrap metal company for $775 million to help feed its electric arc furnaces.

The company announced in a news release Monday morning that it had entered into a definitive agreement to buy Detroit-based Ferrous Processing and Trading Company "on a cash-free, debt-free basis." The sale is expected to close in the fourth quarter of this year.

Cliffs said the scrap company processes 3 million tons of scrap each year — automotive and industrial — and half of that is "prime grade."

Scrap can be added to furnaces as an ingredient of steel, particularly in electric arc furnaces.

“Cleveland-Cliffs is entering the scrap business as a major player through the acquisition of a large scrap company. Even more importantly, (Ferrous Processing and Trading Company) has a very meaningful presence in prime scrap. With all the new flat-rolled (electric arc furnace) capacity coming online in our market over the next four years, prime scrap will only become more and more scarce," Cliffs CEO Lourenco Goncalves said in the release.

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In 2019, Cliffs' Northshore Mining in Silver Bay began producing direct-reduced iron pellets that are turned into hot briquetted iron at its plant in Toledo, Ohio. That's combined with scrap in an electric arc furnace to make steel.

And since its acquisition of AK Steel and ArcelorMittal USA turned Cliffs into a steel maker, it now produces steel of its own.

Goncalves said that buying a scrap company will help it reuse the steel it produced by using "long-standing flat-rolled automotive and other customer relationships into recycling partnerships to grow prime scrap presence."

"As the largest supplier of flat rolled steel in North America, Cleveland-Cliffs is the main source of the steel that generates prime scrap in manufacturing facilities. Furthermore, throughout our entire footprint, Cleveland-Cliffs also consumes a very significant amount of scrap in our (electric arc furnaces) and (basic oxygen furnaces)," Goncalves said. "The acquisition of (Ferrous Processing and Trading Company) will enhance our ability to buy back prime scrap directly from our clients, cutting the middlemen and improving the margin contribution from scrap for both Cleveland-Cliffs and for the manufacturing and service center clients that will be able to sell scrap directly back to us.”

Just a few years ago, Cliffs was only a iron ore mining company with mines and pellet plants in Minnesota in Michigan. But in 2020, it bought AK Steel for $1.1 billion and ArcelorMittal USA for $1.4 million, quickly transforming it into the largest flat-rolled steel producer in North America.

In Minnesota, Cliffs owns and operates United Taconite in Eveleth and Forbes, Northshore Mining in Silver Bay and Babbitt and Minorca Mine in Virginia. It owns the largest stake — 62.3% — in Hibbing Taconite and manages it. U.S. Steel owns the remaining stake in Hibtac.

Ferrous Processing and Trading Company has facilities in Michigan, Ohio, Florida, Tennessee and Canada.