Essar Steel likely to pick up 20% stake in Australian firm
Essar Steel, the third-largest private steel player in the country, is in talks with the Australia-based Cape Lambert Iron Ore (CFE) to acquire a significant equity stake of up to 20%. The stake, for which major Chinese companies including Shandong Yuansheng International Trading are also vying, will give the Indian firm access to CFE’s iron ore project, which is developing reserves of up to 2.5bn tonnes in western Australia.
Sources close to the deal added that Essar Steel also plans to set up 7.5 mtpa pellet plant near the mining project named Cape Lambert Iron Ore Project, giving it an easy source of the all important raw material. Going by the industry benchmark of a 3-mtpa pellet plant needing an investment of Rs 400 crore, Essar Steel’s overall investment including the stake in CFE, is expected to be atleast Rs 1,100 crore.
When contacted a company official stated, “As a group we keep on looking at growth opportunities globally in the sectors we are present. However, we would not like to comment on any specific project.” The company’s scrips were down 1.5% at Rs 36 on the BSE on Thursday.
The Australian company, listed at the Australian Stock Exchange (ASX), has already sold about 20% of its stake to Chinese Group Xinxing Iron Pipes last month and stated that “CFE remains in negotiations with other major Chinese and Indian groups and will continue to review all offtake opportunities with a view to selecting a partner that is not only committed to picking up ore, but also in developing the Cape Lambert project.”
The deal gives the Chinese company right to source 500,000 to 1m tonnes per annum iron ore from the project, “with an ability under the terms… to take a maximum of 5m tonnes of iron ore concentrate.” Sources close to the development added that Essar Steel, as and if the deal finalises, “will have similar or better access to the project.”
The deal would come as a shot in the arm for the Indian company, who is dependent on state agency NMDC for its iron ore needs. Even though it has applied for iron ore mines in various states, it is unlikely that the company will export the raw material to its international facilities, given its stand on the issue of iron ore exports.
“An asset in Australia will help it meet the needs of its Indonesian and Vietnam facilities, where it is in talks with a local player to set up steel mills. Essar Steel is also looking at various other countries to set up plants or get into joint ventures. Through deals like this, it is trying to assure a steady supply of raw material,” said an industry analyst.
The official website of CFE informs that The Cape Lambert Iron Ore project has an area of 223 square km, located in the Northern coastal Pilbara region of western Australia.
The project’s ‘technical value’ is considered to be in the range A$251m to A$377m. ”The technical value can mean the cost of setting up the project but the enterprise value of the reserves, or simply put, the value of the reserves as big as this could be about $2bn,” said an industry analyst. Australian iron ore reserves, estimated to be at 40bn tonne, are known for their high iron ore content.
This is one of the first forays by an Indian company to acquire iron ore deposits in Australia. Earlier steel majors like SAIL and Tata Steel have taken stake in coal mines in the country. Tata Steel has two coal properties in Australia and other companies like JSW Steel is believed to be scouting for raw materials there.
Interestingly, the Aditya Birla Group subsidiary, Aditya Birla Minerals, also has mining and exploration activities in the Pilbara region. The company had earlier this year listed at the ASX.
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