On the Fast Track

Lately, recycling and metals industry publications have been kept busy reporting on all the acquisitions being pursued and closed by Philip Environmental Inc., Hamilton, Ontario. Billing itself as "an industrial recycler that helps generators reuse by-products", Philip provides metals processing and mill services, solid and liquid by-products recovery and on-site industrial and remediation services to major industry sectors. The company is publicly held and trades on the New York Stock Exchange and the Toronto and Montreal Stock Exchanges.

The company is truly on a growth track, with annual sales for Philip’s Metals Recovery Group alone jumping from $308 million in 1995 to approximately $1.3 billion, according to Robert Waxman, president of the Metals Recovery Group. Just since the first of this year, the company has acquired the Luntz Corp., Canton, Ohio; Intsel Southwest Partnership, Houston; the Alcan Alloys plant in Guelph, Ontario; Conversion Resources Inc., Cleveland; and Warrenton Resources Inc., Warrenton, Mo.

Philip Environmental was founded as Philip Enterprises in 1980 by Allen Fracassi, president and chief executive officer, and Philip Fracassi, executive vice president and chief operating officer. It was originally a solid waste business that also focussed on hauling industrial or special wastes from steel mills and foundries in the Hamilton region, Waxman explains. "There are three large mills in Hamilton: Stelco, Dofasco and Slater, and there were at that time several large foundries as well," he says.

The original catalyst for Philip’s growth was the environmental regulations of the 1970s, but the company has always focussed less on end disposal and more on reducing end disposal costs by converting industrial byproducts into raw materials. The strategy is to identify high-volume waste products, identify markets for their constituents, convert them into raw materials and sell them. Metals recovery is a significant part of that strategy.

The company went public in 1991, and the Metals Recovery Group was formed in 1993 with Philip’s acquisition of Waxman Resources and I. Waxman & Sons. Today, the company’s divisions include Metals Recovery, By-Products Recovery, Environmental Services and Philip Utilities. In total, Philip employs more than 4,000 people in Canada, the United States and – as of a recent acquisition – the United Kingdom, as well.

Last fall, Philip sold its municipal solid waste business in Ontario, Quebec and Michigan to USA Waste Services Inc., Dallas., as a result of its decision not to pursue the municipal and commercial solid business.

Finding reuse applications for industrial byproducts has been a primary focus of Philip Environmental since its inception, says Waxman, and selling off its solid waste collection business was a way of honing that focus. "We only have solid waste involvement in residual materials coming from our own recycling centers," he explains.

The company’s Dry Recyclables Group handles post-consumer material, including aluminum, steel and plastic containers from municipalities in Ontario. Although this business is large for the Hamilton area, says Waxman, it is highly regionalized. The company also has some facilities for processing this material, which it held onto when selling the solid waste business.

"It follows our plan of recycling rather than removing material and dumping it, and it was also, we felt, important to us in this general area since that material is being handled in and around the Hamilton area," he says. "But post-consumer recycling is not a priority for us. There’s a lot of competition in that business, and our thrust is currently in other areas."

The Metals Recovery Group has been expanding in recent months through a number of acquisitions, mainly in the U.S. Divided into three basic areas by commodity – copper, aluminum and steel – the group currently has 38 facilities in the U.S., Canada and the United Kingdom (see sidebar), and 1,260 employees, but these numbers could increase at any time.

"We have 38 companies today, but that doesn’t mean it will be that way tomorrow," says Waxman. "There are more companies we’re discussing possible acquisitions with."

Philip processes about 2 million to 3 million tons of ferrous scrap annually, says Waxman. On the nonferrous side, the company processes about 400,000 to 500,000 million pounds of copper scrap, and about the same amount of aluminum scrap. This doesn’t include tonnage for materials brokered, which is substantial but varies from month to month.

"We purchase material from wire and cable manufacturers, telecommunication companies, the automotive industry, steel service centers and metal stamping operations, and other scrap companies and utilities," Waxman explains. "We sell materials back to wire and cable manufacturers, the automotive industry, steel mills and foundries, copper and brass mills and refineries."

On the steel side, Philip is a large ferrous scrap processor. In addition, the company provides a number of mill services, including slag recovery and electric arc furnace and basic oxygen furnace dust recovery. Through Philip’s recent acquisition of Intsel, the company is now one of the largest distributors of structural steel and plate products in the Southwestern and Southeastern U.S. The company’s goal is to be a completely integrated supplier of raw materials and services to mills.

"It’s our philosophy that we want to provide a host of services for steel mills – we don’t want to be limited," says Waxman. "We would like to be a supplier of services and product at the one end, and we would like to be a distribution agent for materials that are produced from scrap materials or iron units that we ship to a mill on the other end."

In addition, Philip can supply mills with environmental maintenance services such as emergency response, analytical and industrial vacuum.

The company is currently building an $18 million EAF furnace dust facility in Hamilton capable of processing up to 70,000 metric tons of EAF dust produced by mills in the Hamilton area into pure zinc oxide, pig iron and small amounts of lead oxide and slag. The plant is expected to be up and running by the end of the year, according to Waxman. The company’s goal is to eventually build four similar plants in the U.S.

No other scrap company can offer such a wide variety of services to mills, says Waxman.

"This integrated approach to servicing industrial markets reflects the vision of Allen Fracassi, Philip’s president and CEO, and we’re trying to carry out that vision first of all in our metals group where we provide a breadth of services with respect to metals, and a breadth of services geographically. We’re the largest integrated mill service provider in North America, and with our acquisition of Allied Metals we’re now based in Europe," he says. "Our By-Products Group and our Environmental Services Group are also concentrating on services which they can provide to a particular steel mill or to a metal finishing business."

Theoretically, Philip could sell scrap to a steel mill, collect the mill’s dross and slag and EAF dust for recycling, and peddle some of their finished steel. In addition, the company could provide numerous other environmental services through its other divisions.

"Through the new steel distribution network, we may recapture scrap that is produced by a manufacturer that we’re selling that material to, and then that scrap can go back to a steel mill," Waxman adds.

There are some mills in Hamilton to which Philip already supplies a large portion of these services. The company’s goal is to constantly add more services to existing clients and then, through new acquisitions, to expand the services it can provide in its other geographical areas.

"We can’t be everything to everyone, but if you take a look at the breadth of services that we supply to a mill like Dofasco in Hamilton, and if we can replicate that example throughout North America, we’ll be well on our way to hitting our strategic plan," says Waxman. "We’re going to target certain areas where we have facilities and can offer services and where steel mills and/or aluminum primary producers exist. But if you look at a map with the current list of Philip facilities, you’ll see that, at least in North America, we’re extremely well situated."

The company recently extended its reach beyond North America with the purchase of Allied Metals Ltd, one of the largest steel scrap processing and mill services companies in the United Kingdom. This acquisition will be the basis of more involvement in Europe, says Waxman. "We will attempt to duplicate a lot of the services we provide in North America to steel mills and automotive producers in Europe."

This involvement will probably be through wholly-owned subsidiaries, not joint ventures, he adds, although Philip’s By-Products Group does have some joint ventures in Brazil and Argentina. "In those countries, our By-Products group has forged a beachhead there through joint ventures, and we will attempt to provide some of our metals services to industries there, likely on a joint venture basis, the same way that the By-Products Group has. Each country is different, and each experience is going to be different."

The trend is for mills to prefer to limit the number of suppliers they deal with, so Philip’s aggressive integration efforts should serve them well.

"Generally speaking, at steel mills or other large industrial units, we are looked upon favorably, but again this depends on it being economically viable for the client and ourselves, and having the services available," says Waxman.

Philip’s Metals Recovery Group includes six facilities that process insulated wire and cable scrap, and facilities for other nonferrous scrap processing. "In the future, we will also concentrate on producing primary products from the copper metal that we produce as scrap," says Waxman. This will likely occur through acquisitions.

According to company officials, Philip is the largest processor of cable and wire scrap in North America. The company initially entered the U.S. market through its purchase of a wire and cable processing plant in Phoenix, and last fall bought Reclaimers Inc., Kendalville, Ind., which operates three wire and cable chopping lines. Philip also manages wire and cable scrap recycling for several large telecommunications companies in the U.S. And in addition to recovering copper through its wire and cable processing operations, Philip also separates the various grades of plastic used to coat wire and cable and sells those as well.

The company is a major supplier of recovered aluminum and copper to primary smelters such as Outokumpu American Brass, Buffalo, N.Y., one of the largest producers of brass in the world. Philip is that smelter’s largest supplier of copper scrap, supplying recovered tin for the company’s Wisconsin alloying plant. In turn, American Brass gives Philip its copper and brass dross, from which Philip recovers zinc and copper. The recycling company also recovers brass from foundry sands for resmelting.

On the tolling side, Philip accepts nonferrous scrap from generators such as GM, processes the material, and returns it to the generator. Philip is GM’s exclusive outlet for nonferrous metal scrap in the U.S.

Last month, Philip agreed to acquire Conversion Resources Inc., Cleveland, and Warrenton Resources Inc., Warrenton, Miss. Conversion is a processor of nonferrous metals that specializes in the management of resource recovery programs for industrial clients, and Warrenton refines copper scrap into copper ingots and other customer-specific shapes. Annual revenues from these operations is more than $100 million. This acquisition represents Philip’s integration into copper smelting, according to Waxman.

"We now have the internal capacity to convert copper scrap into prime metal to satisfy existing contracts and enter new markets," he says. "We will consolidate certain of our nonferrous metals recovery businesses in the United States under the management of Conversion Resources."

Philip is also vertically integrated in the aluminum sector. The company processes dross for primary producers and produces deoxidizing agents for steel mills through Cousins Inc., Painesville, Ohio, which it acquired in May, 1996. And through its recent acquisition of the Alcan Alloys plant in Guelph, Ontario, Philip also produces aluminum alloys which are generally marketed to the automotive industry.

Although Philip Environmental doesn’t spend much money on actual research and development efforts, the company is "constantly on the lookout for practical technologies which can be applied to our businesses on an everyday basis," according to Waxman.

In wire and cable processing, for the past 15 years Philip has shared technology with Carpco Inc., Jacksonville, Fla. Together the two companies developed the Floatex System, which they call "a second generation proprietary technology for recycling plastics". The process uses sand as a medium to sort plastics into homogenous streams. Philip is currently installing a new system to use the technology in its home facilities in Hamilton, with the goal of producing end products in bulk, according to Waxman.

Also in the plastics arena, Philip’s By-Products Group in involved with a joint venture with BASF Corp., Mt. Olive, N.J., involving a technology for recycling polyurethane generated by the North American automotive industry. The two companies are building a 10-million-pound-per-year recycling system at an existing Philip facility in Detroit, which is expected to be operational some time in 1997.

Philip’s strategy is to establish partnerships with industries involved in the application of cutting-edge by-product recovery technologies.

"We also have associations with USCAR, which is the joint venture of Ford, General Motors and Chrysler for automotive dismantling in Dearborn, and we are a partner with Geon in USCAR," says Waxman. "We are responsible for recycling various metal components and plastic components from the trial facility."

On the ferrous side, Philip is installing some advanced technologies in Hamilton and in some of its other briquetting operations to produce iron replacement units for steel mills from various types of scrap and byproducts. "We’re trying to produce a low residual material generated from scrap and byproducts," says Waxman.

This would provide a market for those byproducts. The end goal would be to develop such facilities on-site at steel mills to process that material where it’s generated.

Although each market is different and each geographic region experiences different conditions, Waxman says that in general, scrap markets in which Philip is involved are fairly healthy this quarter.

"We see things improving through the first quarter," he says. "Things are a touch soft in Europe, but they seem to be brisk in North America with respect to ferrous scrap. Copper pricing and volume seem to be increasing, as well as prices for aluminum in North America. It’s difficult anymore for us to give a general opinion, at least on the Metals Recovery Group business, since we have such a varied array of furnaces, products and geographic areas, and they all differ. We hope that they’re all humming at the same time, but that’s not normally what happens."

Waxman expects that the trend toward consolidation of scrap companies will have a big impact on the industry in the coming years. "There seems to be a move afoot, both with our company and a couple of other smaller companies, to try and be a consolidator of some nature," he says.

Although Philip has no current plans to get involved with scrap substitutes such as direct-reduced iron or hot-briquetted iron, the well-integrated company hasn’t ruled it out. "We’re interested in being a full-service provider to steel mills in whichever fashion we believe is economically viable, so I would not discount that from our plans," says Waxman.

Like all other companies in the scrap industry, Philip Environmental is constantly working to comply with a panoply of different environmental regulations in all its facilities. The company has an advantage in that area, says Waxman, because its environmental services division gives it considerably more in-house expertise than most scrap companies enjoy.

"We believe that we are the leader in that area," he says. "We’re in the vanguard in certain areas with respect to plastic recycling, and our environmental background gives us, we believe, an advantage in how we operate our facilities and can provide services to our customers. I don’t think there is a company in the scrap business per se that has the environmental background that this company does or the sound environmental record that this company has."

The Metals Recovery Group shares an large environmental compliance department, complete with a number of consultants and engineers, with the other sectors of Philip Environmental. This department conducts regular audits and controls environmental issues within all the company’s groups. "And that expertise can also be shared with our customers," says Waxman.

Environmental regulations reached a plateau during the late 1980s, he says, and Philip does not want to base their business on providing compliance services. "Economic conditions will be the driver of these businesses rather than environmental regulations," says Waxman.

Philip manages producer responsibility initiatives for a number of its clients, along with all the other services the company provides. "I believe that the breadth of services we offer in the environmental business is a step above all of our competitors and gives us a leg up on being able to plan this business properly for the future," he says. "We believe, at least at this point in time, with the breadth of services that we can offer to these large industrial clients, that we are well positioned. We want to be further positioned for the future to supply more services to more clients."

With all of the areas in which Philip is involved, is there a danger of the company losing its focus? "There’s a very large management team here that we all work with on a regular basis, and I think that we’re all focussed on where we want the business to be without forgetting where we are," says Waxman.

In the future, he adds, the company plans to continue working to provide a greater diversity of services to mills in a variety of geographic areas. "I would not necessarily say that we want to be the biggest, but we are going to strive to be better, more geographically diverse and offer more services."