In a move that signifies its growing appetite to shore up mineral resources overseas, Sajjan Jindal-led JSW Steel is in talks to acquire debt-ridden West African iron ore miner London Mining for an undisclosed sum.
JSW, which is also in pursuit of some assets of Italian steelmaker Lucchini, had said last month that its iron ore imports will swell to around 10 million tonnes this year as its domestic operations were compromised by the falling ore output in India.
The firm does not have captive ore mines unlike other steel-makers such as SAIL and Tata Steel and London Mining’s assets would help account for some of its needs.
“Talks have been going on for many months. JSW people have visited them also,” said one of the sources, who declined to be named as the talks are not public. A JSW spokesperson refused to comment on the issue.
London Mining was one of several junior miners set up in West Africa during the boom years on the back of rising demand for iron ore, but lack of infrastructure, high costs and low prices have scuttled its growth. The firm’s shares have dropped 96% this year and it does not have enough cash to operate its only mine. The Ebola crisis that has gripped the region has also hit operations.
“It presents an opportunity for a cheap asset for JSW but its high debt is a worry,” said a senior analyst tracking the sector in India.
According to Reuters, London Mining’s market valuation has shrunk to around $10 million (Rs 62 crore) but its debt increases its enterprise value to over $290 million (Rs 1,800 crore).
“There are many such companies of medium scale battling rising costs and a highly leveraged balance sheet but the mineral landscape is uncertain and any deal would be highly risky if ore prices continue to fall,” the analyst added.
Iron ore prices have fallen recently as demand in China, the world’s largest steel market, fell by 1.9% in August.
Ore prices are on track for its biggest-ever annual drop amid a global supply glut.