MOSCOW: New York-based investment firm Renco Group said it agreed to buy three of Russian steel maker Severstal's US mills in order to create its own flat rolled steel business in a deal valued at $1.2 billion.

Its new unit, RG Steel, will be the fourth-largest producer of flat rolled steel in the US, and take its place alongside other Renco assets, such as Humvee manufacturer AM General.

In a separate statement, Severstal said it will receive $125 million in cash, a $100 million secured note and the repayment of $317 million of third party debt. Renco will also assume various Severstal liabilities totaling $650 million.

The deal allows Severstal to close a chapter on what has been a troubled story of investment in the North American steel industry.

Its operations there posted a negative earnings before interest, taxation, depreciation and amortisation (EBITDA) of $59 million in the third quarter, compared to a positive EBITDA of $59 million in the second quarter, reflecting what it called a "challenging US steel market."

Severstal is scheduled to post its fourth-quarter results on Thursday.

Renco will acquire mills in Warren, Ohio, Wheeling, West Virginia and Sparrows Point, Maryland. This will provide its RG Steel unit with 7.5 million tonnes of annual capacity.

Both companies expect the transaction to be completed in March.