Anil Agarwal, the chairman of London-based metals and mining major Vedanta Resources, moved a step closer to his dream of becoming the CVRD of India, the Brazilian mining major. Vedanta has acquired Mitsui’s 51 per cent stake in iron ore major Sesa Goa for $981 million (Rs 4041 crore).
In the process, Vedanta beat strong bidders like Arcelor-Mittal and the Aditya Birla Group, who were also in the fray to acquire India’s largest iron ore major, with reserves of 207 million tonnes that can last over 20 years. Sesa Goa exports nine million tonnes of iron ore from India.
Vedanta will pay Rs 2,036 for every share of Sesa Goa, a 16 per cent more than Monday’s closing price. This will be followed by an open offer to acquire 20 per cent equity in Sesa Goa at the same price. ‘‘I always wanted to be in iron ore. This provides us a platform to build a world class mining company like CVRD,’’ said Vedanta chairman.
Vedanta, which is spending $8 billion to increase production capacities to one million tonnes each in aluminium, copper and zinc (in Bharat Aluminium, Sterlite Industries, and Hindustan Zinc), hopes to increase its turnover to $16-17 billion by 2009, said Navin Agarwal, Vedanta’s deputy chairman. CVRD had revenues of $25.7 billion in 2006.
Vedanta plans to invest $13 billion over the next 3-5 years in setting up new capacities and expanding existing ones, including a steel plant in a joint venture with a steel-maker. ‘‘We need to add value, but our first preference is to remain a mining company,’’ said Agarwal. ‘‘Steel-making is not our core business. It’s a different ball game,’’ Pravin Agarwal told HT.
On Monday, American Plc said it would pay $1.5 billion for about half of a Brazilian iron-ore project, adding to $69.8 billion of mining takeovers announced this year. The name of the game is procurement of raw materials. Vedanta will look for an integrated model,’’ Michael Skinner, a London-based analyst at Standard Bank Plc, told Bloomberg.
Competition for Sesa Goa drove its shares to a record Rs 2,000 on January 29. Vedanta is paying 31 per cent more than the stock’s six-month daily average to acquire its first iron ore mine in India, where demand for steel is growing at almost twice the global average fuelled by economic growth of more than 8 per cent.
Sesa Goa may help shield Vedanta's earnings from volatility in metal prices. ‘‘Vedanta probably wants to balance the volatility in its metals basket by adding iron ore,’’ said Niraj Shah, an analyst at Prabhudas Lilladher, a Mumbai-based brokerage. Iron ore prices, set in annual contracts, have risen to a record and could stay at highs till 2013, Credit Suisse said in an April 13 report.
The sale will generate 50 billion yen ($423 million) in profit for Mitsui; Morgan Stanley advised Mitsui on the sale. Sesa Goa shares fell Rs 20, or 1.2 per cent, to Rs 1,722 at 12:05 pm in Mumbai after rising as much as 9 per cent earlier. The stock has gained 22 per cent this year.
Founded in 1954, Sesa Goa has iron-ore mines in the states of Goa, Karnataka and Orissa, and sold 9.6 million tons in the year ended March 2006. Sesa Goa also has pig iron and coke oven plant of 250,000 tonnes each, which can be scaled up by low-cost de-bottlenecking, said Agarwal.
(With inputs from Bloomberg)
Possible Box on Steel
Anil Agarwal's Vedanta Resources may venture in to steel production. After acquiring controlling stake in the country's largest iron ore exporter, Sesa Goa, the NRI business tycoon is scouting for a partner to float a joint venture to commence steel production.
"India has huge demand for steel. Steel production is a natural transformation for us. Acquisition of iron ore assets is part of our long term strategy and production of steel, perhaps at a later stage will be part of a gradual transformation," Vedanta Resources chairman Anil Agarwal said.
Vedanta would not set up its own independent plant, but may go for a joint venture, he added.
India's current steel production is at about 44 million tonne and is expected to cross 70 million tonne by 2010-11. China is the largest steel producer in the world with an annual production of 420 million tonne while India ranks seventh in the world.
Most of the world’s top steel makers are setting up plants in India as the demand for steel increases. South Korean steel major Posco has signed an agreement to set up a $ 12 billion plant in Orissa, while the world's largest steel maker, Arcelor Mittal, in December signed an agreement with Orissa to build an $ 8.7 billion production plant.
"We will float the JV when we get a good deal," Agarwal said.