A billion-dollar coal deal in JSW Steel's sights

JSW Steel’s talks with Whitehaven follow its failed bid to acquire a majority stake in the metallurgical coal business of Canada’s Teck Resources in 2023, which was snapped up by mining and trading major Glencore.
JSW Steel’s talks with Whitehaven follow its failed bid to acquire a majority stake in the metallurgical coal business of Canada’s Teck Resources in 2023, which was snapped up by mining and trading major Glencore.

Summary

  • The companies are yet to decide on the final valuation. If the parties reach an agreement, a deal is likely by the end of March.

Mumbai: JSW Steel Ltd is in talks with Australia’s Whitehaven Coal to buy a 20% stake in its Blackwater mine for around $1 billion, two people aware of the matter said.

The companies are yet to decide on the final valuation. If the parties reach an agreement, a deal is likely by the end of March, the people said on condition of anonymity.

JSW Steel’s talks with Whitehaven follow its failed bid to acquire a majority stake in the metallurgical coal business of Canada’s Teck Resources in 2023, which was snapped up by mining and trading major Glencore.

A JSW spokesperson declined to comment, while Whitehaven did not respond to emailed queries.

Access to sufficient amounts of imported coal is critical for JSW Steel, India’s largest steelmaker by capacity, to achieve its ambitious target of nearly doubling annual capacity to 50 million tonne by the end of this decade. India has only trace quantities of coking coal, a key input for steelmaking, and the country relies exclusively on imports primarily from Australia, Russia, and Canada.

The development was first reported by The Australian newspaper. Japan’s Nippon Steel is also in the race to pick up a stake in the mine, the report said.

Whitehaven Coal chief executive Paul Flynn earlier said that there was “strong interest" to possibly sell a 20% stake in the Blackwater mine to global steelmakers as strategic joint venture partners, The Australian reported.

Whitehaven had acquired Blackwater and Daunia, another coal mine, from BHP in October for $3.2 billion. At a $1 billion asking price for a 20% stake in Blackwater, the company could see a significant mark-up in the valuation of the asset in just a few months.

Volatility in coal prices in recent years, triggered more by geopolitics than economics, has created a planning nightmare for steelmakers, making their margins vulnerable to externalities.

“Steel business is raw material intensive in nature, and raw material costs account for a majority of the total cost of steel production. In addition, raw material prices, especially of coking coal, exhibit very high volatility at times," said Jayanta Roy, senior vice-president at Icra. “Therefore, access to captive sources of raw materials can benefit steel makers in terms of both availability as well as better control on costs," he said.

Among Indian steelmakers, Jindal Steel and Power, with an inves-tment in Wollongong Coal Ltd in Australia, has access to coking coal through two mines. Despite production challenges, the company is working to ramp up output to use the assets as a hedge against volatile coking coal prices.

The Adani Group is another Indian business to have assets Down Under, where it mines for coal. The country has attracted a lot of global resources majors owing to its thriving mining industry, with minerals accounting for three-fourths of the company’s total exports.

Shares of JSW Steel closed 0.26% lower at 818.35 on the BSE on Monday, while the benchmark Sensex index rose 0.39%.

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