New Delhi: State-owned steel maker Steel Authority of India Ltd (SAIL) hopes to buy iron ore mines in Afghanistan and is also eyeing a 24% stake in Singapore’s MEC Coal via separate consortia, as the race for overseas mining assets hots up.
“Only five-six big companies, headed by SAIL, will bid for Afghanistan’s iron ore asset,” SAIL chairman C.S. Verma said in an interview. “In next two weeks’ time, we should sign an agreement.”
Afghanistan has invited global bids for its Hajigak iron ore mineral fields and short-listed 21 companies.
Verma, who convened a meeting of 15 Indian companies last week, said that if the Indian consortium wins the Hajigak mines, it would be interested in setting up a steel plant as the country is seen as a good market.
Afghanistan currently imports 4-5 million tonnes (mt) of steel a year.
Mint reported on 20 May that representatives of the 15 companies including Tata Steel Ltd, Rashtriya Ispat Nigam Ltd, Jindal Steel and Power Ltd (JSPL) and Jindal Steel Works met SAIL executives to discuss a joint bid for the fields, which may hold as much as 1.8 billion tonnes of high-grade iron ore.
“Afghanistan’s economy is transforming into a developing one,” Verma said. “Our bid is on a pure commercial bidding basis only, but yes, we have to get support of the government, which I think will come.”
Verma also said the International Coal Ventures Pvt. Ltd (ICVL) consortium, headed by SAIL, was in talks with Singapore-based MEC Coal for the purchase of a 24% stake that could give the consortium some thermal coal from overseas.
“ICVL and MEC are still discussing the documentation part of it,” he said. “Stake buying is frozen now, but there are various other documents which are required to be frozen, which we are discussing with them. There is no timeline (for closure of the deal).”
Indian metal companies have been buying mines and plants overseas in an effort to secure supplies otherwise unavailable in India and also to side-step as they are finding it difficult to grow in India owing to social, environmental and regulatory roadblocks.
The trend that has accelerated recently started several years ago with Tata Steel buying out Anglo Dutch Corus in 2006 and JSW Steel Ltd acquiring a factory in the US in 2007 and later mines in Chile, the US and Mozambique.
Even mid-size Essar Steel Ltd and JSPL have a global presence.
SAIL has been comparatively slow.
It has been chasing assets through ICVL, which is also headed by Verma, but has met with no major success in the last two years.
Analysts say slow decision-making coupled with the difficulties of working in foreign terrain are responsible for this.
Verma said such acquisitions are “not very easy”.
“Two or three other proposals (apart from MEC) are at various levels of due diligence,” he said. “We are buying assets which we have to develop and we have to cater to mining operations. Assume a success rate on a conservative basis of 25%.”
Verma added that these investments would cost between $500 million (Rs 2,265 crore) and $1 billion.
Analysts say SAIL needs to grow aggressively, pointing to growing demand—it is rising at double digit rates—lagging supply, and rising imports.
Most of the company’s planned modernization and expansion of steel capacity to 23.5 mt by 2013 from 13.8 mt now is at existing steel plants. It should, the analysts add, be building new plants with newer technology instead.
“The perception about SAIL (being slow) is partially correct; there have been delays on their projects,” said Arun Kejriwal, director of equity research firm KRIS.
SAIL has been in talks with South Korea’s Pohang Iron and Steel Co. (Posco) for setting up a plant using Finex technology to produce high grade steel since last year amid reports of differences over shareholding.
“There are so many issues involved. There are technological issues involved. There are many other logistics and organizational issues involved. A detailed project report (DPR) is under preparation. The gestation is three years from the time DPR is accepted,” said Verma.
“As for the acceptance of DPR I am not giving any time line.”