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U.S. Steel Claws for Cash to Maintain Strategy Amid Pandemic

Joe Deaux

(Bloomberg) -- U.S. Steel Corp. is doing everything it can to weather the economic downturn caused by the coronavirus pandemic, including a share offering announced late Wednesday.

The company offered 50 million shares -- almost a third of the current number outstanding -- for proceeds of $429 million. The shares dropped 9.9% to $8.46 as of 10:39 a.m. in New York on Thursday.

The Pittsburgh-based steelmaker faces a historic decline in demand, announcing earlier Wednesday that it expects deeper losses in the second quarter than analysts had estimated. At the same time, U.S. Steel is working toward buying the remaining 50.1% of Big River Steel, after previously paying $700 million for almost half of it. The company said its investment in the electric arc furnace remains the “number one strategic priority.”

“They have strategic objective of taking Big River down and want to make sure with 150% accuracy that they can get through this time period,” Phil Gibbs, an analyst at Keybanc Capital Markets, said in a telephone interview. “They weren’t bashful about what they needed in October to go after Big River, they don’t have any money and they’re going to have to go out and find ways to get it.”

Before the pandemic, U.S. Steel already faced mounting skepticism about its ability to generate enough cash to afford its new investment while also paying for capital improvements on its aging assets.

In the deal announced Wednesday, the company also granted the underwriter, Morgan Stanley, an option to buy up to 7.5 million in additional shares.

(Updates share price in second paragraph.)

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