New Mill Manufactures Steel, Jobs in Rural Oklahoma

Novogradac Journal of Tax Credits Volume 8 Issue 1
Monday,  January 2, 2017

 

Jobs in rural communities are often hard to come by-many are seasonal, while many  others are low paying. Commercial Metals Company (CMC) is expanding its business while creating quality jobs with its new environmentally sustainable steel manufacturing facility in the rural community of Durant, Okla.

 

The micro-mill expects to support 250 jobs in a distressed census tract with a 13.1 percent unemployment rate, according to the National New Markets Fund (NNMF), which is one of the four community development entities (CDEs) that provided a new markets tax  credit (NMTC) allocation to this development. ·’With an investment of this size, our hope is that our mill will have a positive impact on the local economy for years to come,” said Mary Lindsey, vice president and chief financial officer for CMC.

 

The Durant facility will be CMC’s sixth steel mill in the United States, with a seventh in Poland. The concrete reinforcing bar, or rebar, created at the mill is used primarily for nonresidential construction. The rebar is used for everything from infrastructure work on hospitals to dams and bridges to roadways, and much more. The century-old company produces steel that is made from 100 percent recycled pre- and post-consumer scrap.

 

Because of the mill’s unique processes, it is anticipated that the mill will reduce carbon dioxide emissions by at least 58 percent, compared to a traditional iron ore-based steel plant. Gases produced in the steelmaking process will be used to preheat scrap, which in turn will reduce electricity consumption. The mill will also employ advanced air filtering and recycling technology to enhance recovery and reuse of common steelmaking by-products, according to NNMF. In addition, water used in the steelmaking process will be recycled to reduce discharge.

 

Durant is part of the Choctaw Nation of Oklahoma federal Promise Zone, which is one of 22 zones across the country. President Barack Obama laid out this initiative to designate a number of high-poverty urban, rural and tribal communities as Promise Zones, where the federal government will partner with and invest in communities to create jobs, leverage private investment, increase economic activity, expand educational opportunities and reduce violent crime, according to the U.S. Department of Housing and Urban Development. CMC worked with the Choctaw Nation during development and they will continue to work together moving forward. CMC is also working with other local organizations. “Electricians and mechanical technicians are needed to maintain mills, so we are working with local colleges and technical schools to develop training programs,” said Lindsey.

 

CMC broke ground on the Durant mill in spring 2016 and it expects the new micro-mill to be commissioned in the fall of 2017. When completed, the state-of-the-art micro-mill will use an uninterrupted production-line process powered by an efficient electric arc furnace. The steel mill will have the capacity to produce 350,000 tons of rebar, according to NNMF. At the time of publication, the foundation of the mill was complete, the roof was being built and equipment was being delivered to the site.

 

Financing

CMC used NMTC equity to help fund the development of the mill. U.S. Bancorp Community Development Corporation (USBCDC) acted as one of the four CDEs by providing a $4.5 million NMTC allocation and was the sole investor in the credits, providing $17.6 million in NMTC equity. ·’What first jumped out to us was the amount of jobs created in this rural commun ity,” said Andrew Hammond, assistant vice president, business development associate for the new markets tax credit and historic ta x credit investment team at USBCDC. “CMC committed to hiring locally for construction and permanent jobs.” Hammond also liked th is development because U.S. Bank has a banking relationship with the sponsor, so this was an opportunity to better serve an existing client. “The city of Durant wouldn’t have been selected as the location of this project if not for the NMTCs,” said Hammond.

 

REI Oklahoma and Midwest Renewable Capital (MRC) partnered with USB CDC to provide NMTC allocations to help fund the real-estate-related costs while NNMF provided an NMTC allocation for the working capital and the machinery.

 

MRC provided an $11 million NMTC allocat ion. Scott Mikkelsen, president at MRC, said it was a little larger than its average allocation size of between $8 million and $9 million. However, MRC felt it was warranted because CMC can be a cornerstone of Durant’s economic growth for many years. “We are looking to use our NMTC capital in a way that funds innovation and produces long-term growth and positive change for distressed communities,” said Mikkelsen. He also noted CMC’s project was attractive due to the extensive job creation and its cutting-edge technologies, making it one of the most environmentally friendly steel mills in the country.

 

REI Oklahoma provided a $15 million NMTC allocation. This allocation is substantially larger than its average $5 million-7 million allocation. “REI stands for Rural Enterprises Incorporated, so our emphasis has and always will be in rural Oklahoma. We place the majority of our allocation in rural parts of the state,” said Scott Dewald, president of REI Oklahoma. REI received a $65 million NMTC allocation in the 2015-2016 round. “This project wouldn’t have happened without the NMTC. The NMTC program is designed to bring investment in areas that wouldn’t otherwise get investments. And it did exactly that,” said Dewald. “This was a big project for the state of Oklahoma. Everyone was at the table to try to make it happen” from all four CDEs, to the investor to the various state and local agencies.

 

NNMF provided a $21 million NMTC allocation for the working capital and the machinery. “They are using pre- and post-consumer scrap metal to create this rebar,” said Deborah La Franchi, president of NNMF, who also liked that the facility produces substantially lower greenhouse gases than other mills. “This is a community in great need of economic development. The impact this will have on providing quality jobs for the Choctaw Nation was the driving factor behind our decision to invest,” explained La Franchi. She said the biggest challenge was pursuing this closing at the same time the other NMTC closing was happening.

 

“The development of CMC’s new steel mill in Durant, Okla., is having a significant impact on the local community, from the creation of construction jobs to full-time jobs needed to run the mill to creating educational programming at local universities and technical schools,” said John Sciarretti, partner at Novogradac & Company’s Dover, Ohio, office. Novogradac provided transaction advisory and financial modeling services to the project. “The NMTC program is the perfect tool for attracting capital to an underserved area like Durant.”

 

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