By Ian Ross
A group of former Algoma Steel employees were anxiously awaiting the results of a KPMG feasibility study in late August before forging ahead with a business plan to establish an electro-galvanizing line at Algoma Steel this fall.
Lappin Industries Inc., a Sault Ste. Marie start-up company, is arranging financing to acquire and move components of a galvanizing line from bankrupt Cleveland steelmaker LTV, now liquidating its assets.
Barring any unforeseen market circumstances and with favourable feasibility study results, Lappin, which has a right to purchase and remove the line with agreement in hand from LTV, expects to make their move after Labour Day, finalizing a deal to move the line north.
“We’re not accountants, we’re not business managers, but we do know how to keep a line running and we think there’s a market for that type of (product),” says Shane Halpin, the company’s vice-president, who together with partner and president Robert LaPensee, have mechanical maintenance backgrounds at Algoma Steel.
The electro-galvanizing process involves coating sheet steel with zinc to provide necessary corrosion resistance.
Customers, especially in the automotive industry, increasingly demand galvanized steel for exposed steel applications.
Establishing some aspect of value-added steel to produce a high-end product that would complement Algoma’s modern direct strip production complex was an opportunity the two partners had been mulling over for years.
“It’s been a two-and-a-half-year project of hunting out and doing our homework on different steel markets.” says Halpin, who had been examining LTV’s galvanizing line for a year.
Many friends in the financial community advised them to relocate their venture to southern Ontario to be closer to the midwestern U.S. automotive and appliance market, but Halpin says there is not much time difference in transporting steel from Hamilton’s Dofasco plant to the Windsor border than from Sault Ste. Marie to the American heartland.
Though fully realizing the North American steel industry is a tough, competitive business to get into, Halpin says his partners will rely heavily on their sales staff and an extensive brokerage system to “bring a low-cost, quality product to the market.”
“We think we have those good people in place.”
Electro-galvanized (EG) steel had its hey day in the 1970s and 1980s before giving way to hot-dip galvanized lines that employed newer technology, which will allow coating to be applied to steel in a more uniform manner.
“Everyone wanted to get away from EG because of the chemical costs and it was a very intricate process.
“The technology has come around now where EG has become very competitive with hot-dip.
“It’s now a niche specialty market for side-body panels for the automotive industry.”
Halpin believes the market potential is good considering only eight North American facilities engage in the electro-galvanizing process.
Though LTV’s galvanizing line was installed in 1961, Lappin will be scavenging only certain components and will add new technology to produce twice the tonnage as the original line.
They expect to hit the ground running after a three-month ramp up with 45 employees processing about 5,000 tonnes a month. Within six months they expect to employ 10 to 15 more, with a mill capable of handling 18,000 tonnes a month.
Lappin intends to rent out space in Algoma’s vacant rail mill in a customer relationship deal to process sheet steel.
Though reluctant to disclose the purchase price, Halpin says starting up such a facility would likely be in the $70 million to $90 million range.
Financing will come from a “totem pole” of conventional and venture capital banking, says Halpin, mentioning the Business Development Bank of Canada, as well as pursuing some interest from local investors.
Sault Ste. Marie’s Economic Development Corporation contributed $17,500 towards developing the feasibility study, business plan and venture capital plan, with FedNor contributing $40,000.
