Tata group may start mining company to pool resources

Jamshedpur: The Tata group is looking to launch a mining company to secure mineral resources for companies such as Tata Steel Ltd and Tata Power Ltd.

This proposed firm will focus on mineral resources outside India, according to H.M. Nerurkar, managing director, Tata Steel, which could launch it on its own or in partnership with other group companies.

“Considering Tata Steel’s experience in mining, this is what should happen and will happen in the future,” Nerurkar said.

The group currently mines coal and iron ore for its own consumption. It does not, however, propose to enter commercial mining. “It wouldn’t (on its own) become a revenue stream immediately,” Nerurkar said.

By pooling the resource needs of its member companies, the group aims to benefit from the economies of scale that will ensue, as the drive for growth looks set to push commodity prices higher.

“Investments in mining projects are normally very high and it is, therefore, more viable to mine in bulk for all group firms,” Nerurkar said. “We are also likely to get discounts for importing coal in larger quantities.”

In a lacklustre market, Tata Steel’s shares closed 0.27% lower at Rs 425.05 apiece on BSE on Wednesday, while the benchmark Sensex fell 0.16% to 17,145.52 points.

“Mining has emerged as an attractive business proposition even for consumers of mineral resources—for example, the Aditya Birla Group,” said Anil K. Agarwal, national leader, mining and metals sector, and a partner at consulting and audit firm Ernst and Young.

Tata Steel has vast experience in mining, and with time it could well emerge as a “stand-alone revenue stream” for the company, he added.

In line with its strategy to stay out of commercial mining, Tata Steel last year sold its 26.27% stake in Australia’s Riversdale Mining Ltd to an arm of Rio Tinto Plc for $1.13 billion (around Rs 5,706 crore today), taking in twice the amount it had invested four years earlier.

While it cashed out of Riversdale under Rio Tinto’s $4 billion unsolicited takeover bid, Tata Steel retained its 35% interest in a coal mining project in Mozambique in which Riversdale is the principal shareholder. Tata Steel’s equity stake entitles it to a certain share of the coal mined from the project.

Nerurkar said Tata Steel’s coal assets in Mozambique and Canada were expected to start supplies to Tata Steel International—the erstwhile Anglo-Dutch steel maker Corus that the group acquired in 2007—next year.

He was referring to an iron ore mining project in east Canada, in which Tata Steel owns an 80% equity stake. The remaining 20% is held by New Millennium Capital Corp., in which the steel maker is the largest shareholder with a 27% stake.

These investments in overseas coal assets are held by Tata Steel Global Minerals Holdings Pte. Ltd—a wholly owned subsidiary.