New Delhi: India’s largest iron ore producer NMDC Ltd is set to appoint Deloitte Touche Tohmatsu India Pvt. Ltd as a financial adviser for the purchase of three coal mines owned by Russia’s Kolmar Coal Co. and expects to complete the transaction by May, two people familiar with the development said.
NMDC, which has been eyeing the deal since last year, may sign the agreement with Deloitte within a week, the people, which include industry and merchant banking sources, said on Wednesday.
The miner may, however, be forced to square off with several global contenders for the asset as the race to secure raw materials gets tighter.
“The technical due diligence is over. Financial advisers have been shortlisted. In just a few days, the party will be appointed,” a person aware of the development said on condition of anonymity. “The deal might take a month or two to be concluded.”
While a Deloitte spokesperson declined comment for the story, a senior Deloitte executive confirmed the development and said, “We have been shortlisted for the deal and we hope to be appointed shortly. The mines mostly contain metallurgical coal.”
NMDC, which produced 23.8 million tonnes (mt) of iron ore in 2009-10, lower than the 28.5 mt it produced in the previous year, is building steel plants as the government seeks to impose a rule that will force miners to share profit with displaced locals.
The company has begun setting up a one mt steel plant in Chhattisgarh and has signed an accord with Russia’s Severstal to build a steel plant in Karnataka.
While iron ore for its steel plants will come from its own mines, NMDC needs to get coking coal supplies from abroad, as local production can’t meet demand. The acquisition of Kolmar mines is critical for NMDC to ensure coal supplies.
NMDC chairman Rana Som declined to comment on plans for Kolmar. “We are trying very hard to get iron ore and coal mines overseas,” he said. “We are looking at the US, Russia and Australia.”
But bidding for Kolmar mines may be hotly contested as Japanese and Korean companies may also vie for the asset because the geographical proximity of the mines makes it very attractive, said the first person cited above. Indeed the demand in the region for coking coal is big and NMDC’s plan is to trade a part of the coal from Kolmar in that region, he said.
NMDC is part of International Coal Ventures Pvt. Ltd (ICVL) set up by state-controlled firms including NTPC Ltd, Steel Authority of India Ltd, Coal India Ltd and Rashtriya Ispat Nigam Ltd to secure coal assets overseas but has been unable to secure even a single asset.
Indian companies have been competing with leading Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd for acquiring mining concessions overseas.
News reports that have appeared in the past have valued the three mines owned by Kolmar at $400 million. Sources said the actual deal price may be different from the estimate.
If NMDC does manage to buy the Kolmar mines, it would get a supply of one mt a year of mostly coking coal immediately.
Analysts said NMDC’s attempts to buy an overseas mine was timely as coal shortages are projected to widen in future, but there might be risks involved in mining overseas.
“A sum of $400 million for 5 mt of coking coal sounds like a good deal on the face of it. One needs to see if there is any royalty involved and how much money will have to be spent on developing the mine,” said Alok Agarwal, head of institutional research at Mata Securities Pvt. Ltd in Mumbai.