Mumbai: Essel Mining and Industries Ltd, a closely held Aditya Birla Group firm with interests in iron ore mining and ferro alloys that occasionally does duty as a holding company for the group, will now concentrate on its own growth, a top official said.
The mining company is eyeing the acquisition of iron ore and coal mining assets, and will invest in logistic businesses that have some synergy with the mining industry such as rail and ports, Ravi Kastia, managing director and chief executive officer of Essel Mining, said in a telephone interview.
The firm is also open to inducting a strategic partner for new mining projects, he said.
Until now, however, Essel Mining has been known more for its role as a play maker for the group’s other firms that have mined its resources in times of need.
In 2007, the low-profile, unlisted mining firm part-funded the $6 billion (Rs27,060 crore today) acquisition of Novelis Inc. by investing $300 million as equity. It also holds a 12% stake in aluminium maker Hindalco Ltd, a flagship group company. A 10 May report from ratings agency Crisil Ltd said the firm had exposure of Rs5,540 crore to other group firms at the end of calendar 2009.
In 2008-09, the unlisted company had a profit of Rs990 crore on revenue of Rs3,187 crore.
The new focus comes at an opportune time—the Union government has a draft mining policy awaiting parliamentary approval that is expected to open up the sector.
Under current rules, commercial and merchant mining is prohibited, and most state governments insist mining projects have a value-added component linked to the licence, such as a steel plant for an iron ore plant, or a power plant for coal.
Kastia said the company was hoping for “a transparent policy that will allow merchant and commercial mining of iron ore and coal”.
Kastia says the new mining policy will give his company the opportunity to invest and expand in its core mining business; in fiscal 2011, it will invest Rs300 crore in its existing assets.
All new investments will come from internal accruals, he said, ruling out an initial public offering at this juncture.
Essel Mining will also offer to add value to projects and may induct strategic partners, including group companies, in specific projects, he said.
Mining sector analysts say the strategy to be a low-key company makes sense under existing laws when state governments want to conserve raw materials.
“The new mining policy will be positive for companies such as Essel Mining as the raw materials such as iron ore and coal are scarce resources and mines would be allocated to those companies committed to do value addition,” said Pawan Burde, vice-president of research at Pinc Research, an affiliate of Pioneer Investcorp Ltd.
In fiscal 2010, Essel Mining produced 10 million tonnes (mt) of iron ore, two-thirds of its annual capacity of 15 mt. Its mines in Barbil in Keonjhar district in Orissa have resources of 170 mt of high-grade iron ore that has 62% ore content.
At the current production capacity, the assets can last for 25 years, according to Kastia.
Crisil, in the same report cited above, also upgraded its rating to AA-/stable from A+ stable, and noted that Essel Mining has strong financial flexibility due to the support of Aditya Birla Group and its established position in the iron ore business.