BSL Bluescope Steel Limited

SYDNEY—BlueScope Steel Ltd. has agreed to buy Cargill Inc.'s stake in their U.S. joint venture North Star for US$720 million, and will keep making steel at its struggling flagship Australian mill after reaching cost-saving deals with unions and the government.

In a statement Monday, BlueScope said it had exercised its right of last refusal under the North Star shareholders' agreement, matching an offer received by Cargill from a third party. Delta, Ohio-based North Star produces 2.0 million tons of hot rolled coil a year and employs 380 people.

In a separate statement, Cargill said that with the deal it will exit its last remaining steel-production investment. However, the Minneapolis company will continue to trade, distribute and process steel products such as iron ore, hot rolled steel coils, and reinforcing bar steel.

A global glut has sapped steel prices over the past year, while a surge in cheaper Chinese exports is making life difficult for Australian, Korean and Japanese producers in particular.

Producers everywhere are being squeezed by oversupply as China's demand for steel—used in everything from skyscrapers to bridges—slows. China produces roughly half of the world's steel.

"We have chosen to sell our interest in the joint venture to redeploy this capital elsewhere in Cargill's portfolio, and are confident in the team's continued success under new ownership," said Peter Hawthorne, Cargill's vice president of strategy and business development.

Founded 150 years ago, Cargill is shaking up its portfolio to keep up with shifting consumer tastes and to strengthen profitability. In August, it reported its third annual earnings decline in four years.

Black River Asset Management LLC, a hedge fund unit owned by Cargill, announced plans in September to spin out of Cargill and split into three separate firms after closing four funds in recent months.

In July, Cargill agreed to sell its U.S. pork business to Brazil-based JBS SA for $1.45 billion.

Cargill said in August it would pay US$1.49 billion to acquire a Norwegian producer of salmon and trout feed, part of a bet on the rapidly growing fish-farming industry.

BlueScope also said Monday it had decided to continue producing steel at its flagship Port Kembla operation, south of Sydney, after the New South Wales state government committed to defer 60 million Australian dollars (US$43 million) of payroll tax payments over the next three years.

Collapsing steel prices had prompted BlueScope to review its Port Kembla steelworks, which support some 5,000 workers and have been struggling to compete with the surge in cheap steel in global markets. Several analysts had predicted the operation would close. As well as tax breaks, the mill was saved by a deal struck earlier in October with unions and workers that will result in 500 job losses and other cost savings.

BlueScope also upgraded its earnings guidance Monday. It now expects about 40% growth in underlying earnings before interest and tax in the first half of fiscal 2016 from the second half of fiscal 2015. That is about A$50 million greater than in its previous outlook due to earlier-than-planned cost savings in the company's Australian Steel Products division, strong domestic demand, and the benefits of a weaker Australian dollar.

Write to Rebecca Thurlow at rebecca.thurlow@wsj.com and Jacob Bunge at jacob.bunge@wsj.com

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(END) Dow Jones Newswires

October 25, 2015 23:25 ET (03:25 GMT)

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