Stelco Holdings Inc. says it has entered into a long-term agreement with United States Steel Corp. to purchase iron ore pellets from the largest iron ore mine in the U.S.

The eight-year replacement deal will supply all of Stelco’s anticipated iron ore pellet requirements at Lake Erie Works and expanded production from a blast furnace upgrade through Jan. 31, 2028.

The Hamilton-based steelmaker also has an option to acquire a 25 per cent interest in the Minntac mine in Minnesota, which has annual production capacity of up to 16 million tons.

Stelco will pay US$100 million cash for the option, which expires Jan. 31, 2027, and then US$500 million should move ahead.

Stelco said the deal secures the future of its steel production, solidifies its low-cost advantage and increases annual pellet supply to accommodate its higher production capacity.

In advance of Tuesday’s release of its first-quarter results, Stelco said it earned $20 million in adjusted EBITDA (earnings before interest, depreciation and amortization) on $445 million of revenues after selling out of 621,000 tons of steel.

“This transaction represents a major milestone for Stelco as it secures a long-term supply of high-quality iron ore pellets and a highly valuable future option to acquire a 25% ownership interest in the Minntac Mine, one of, if not the, best assets on the iron range,” said Alan Kestenbaum, Stelco’s executive chairman and chief executive officer.