Vedanta in big Iron ore sourcing plan
After acquiring the majority stake in Sesa Goa, Vedanta Resources is set to multiply its revenues from Iron ore in the next couple of years, reports Arun Kumar.Updated: May 07, 2007 21:36 IST
After acquiring the majority stake in Sesa Goa, Vedanta Resources is set to multiply its revenues from Iron ore in the next couple of years as it did in with Aluminum and Zinc after buying Bharat Aluminium Company (Balco), Madras Aluminium Company (Malco) and Hindustan Zinc.
Sesa Goa currently produces 10-11 million tonnes of Iron ore, which will cross 20 million a year by 2010. "The company will not only focus on the overseas market but also on the domestic market in order to maximize returns for shareholders," said a company executive on condition of anonymity.
Industry experts feel the company may enter into a metal-for-equity arrangement with leading steel makers. It is common in this sector that iron ore suppliers, at the time of entering long-term contracts, also take minority stakes in the project. This offers assured supply to Steel makers and an upside in the equity to Iron ore suppliers.
The company may enter a strategic alliance, including equity participation, with a leading global Steelmaker to secure long-term business and a possible upside in value addition. "Leading Iron ore producers like BHP Billilton take minority stakes of around 10 per cent in Steel producing companies. This is an ongoing trend," said the executive.
However, a Sesa Goa spokesman denied the prospects of a joint venture with Arcelor-Mittal. "There is no truth in this and there is no such possibility in the near future," he added.
Sesa Goa has a prospecting licence in Jharkhand. The Jharkhand government has reportedly issued a notice to the company to start operations. The company is aiming at increasing productivity from existing operations in Goa, Orissa and Karnataka. According to current estimates, the extractable ore from these sources is around 150 million tonnes.
Vedanta Resources acquired a 51 per cent stake in Sesa Goa from Mitsui & Co, Japan, for Rs 2,036 a share, aggregating to Rs 4,087 crore. Vedanta is making an open offer to the public for an additional 20 per cent of Sesa Goa at Rs 2,036 a share. The cash consideration for the 71 per cent stake is Rs 5,690 crore.