Tata Steel is looking for raw material security at a frenetic pace and the world’s sixth largest steelmaker is now eyeing the Western Cluster Iron Ore deposits in Liberia, for which a bid has already been submitted.
The Western Cluster consists of several deposits spread over 207.58 sq km and the investment is likely to be around $1.5 billion.
When asked, a Tata Steel spokesperson refused to comment and said that the company was looking at all opportunities globally in the area of resource security for the group.
Other companies have also evinced interest in these deposits and Tata Steel has responded to a bid put out by the Liberian government. Tata Steel is one of the shortlisted bidders and the only company from India.
The Western Cluster comprises the Mano River Iron Ore, The Western Position of Bomi Hills Iron Ore Deposits and the Mountain Iron Ore Deposits.
Recently, Tata Steel signed a joint venture agreement with Sodemi (a state-owned Ivory Coast mineral development company) for development of Mount Nimba Iron Ore deposits. Liberia is also on the west coast of Africa.
The Mount Nimba initiative was the first iron ore venture outside India for Tata Steel and the investment in the project by the joint venture company, where Tata Steel holds 75 per cent, could be around $1-1.5 billion in 3-4 years. The company has set a target of achieving raw material security of 50-60 per cent in the next 5-6 years.
Currently, the company’s iron ore security with Corus is 20 per cent, while on a standalone basis, Tata Steel has a 100 per cent security.
Industry analysts said galloping raw material prices were propelling steel companies to run for security cover.
Iron ore prices might jump as much as 50 per cent in 2008. Contract prices for iron ore have tripled in the past five years, and back home, allocation of captive mines has become a time-consuming exercise.
The Tata group consists of Corus and Tata Steel (including Tata Steel Thailand and NatSteel Asia) and the captive iron ore resources would help in bringing down the cost of production at the Corus facilities. Corus requires 28-30 million tonnes of iron ore per annum.
Earlier this month, Tata Steel signed a joint venture agreement with Australia’s Riversdale Mining to set up a special purpose vehicle to develop a hard coking coal and thermal coal project at Riversdale’s key exploration tenements in Mozambique.
On the coal front, Tata Steel has a security of around 15 per cent from a standalone of 60 per cent security.
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Tuesday, December 25, 2007
Tatas bid for Liberian mines, to put in $1.5 bn
Thursday, December 13, 2007
Tata Steel: Win-win deal
The steel major's joint venture in Ivory Coast is set to cut costs at the Corus facility
Tata Steel’s announcement of a 75 per cent stake in a joint venture to develop iron ore facilities with a state-owned company in Ivory Coast is clearly aimed at bringing down the cost of production at its Corus facility.
Corus supplies steel to the higher end of the Western European steel market, but it does not have iron ore captive resources in contrast to its parent in India.
Analysts point out that supplies of iron ore from the JV in Ivory Coast could directly help in bringing down Corus’ cost of production by $50-60 a tonne over the medium term. The Tata Steel stock rose 3.4 per cent to Rs 865 on Wednesday.
Tata Steel’s cost of production in the domestic market is estimated at $280-300 a tonne (excluding freight cost to the end-customer), while that of Corus is estimated at more than $450 a tonne.
The production cost is higher at Corus for two reasons: its products are value-added and reasonably complex, and it does not have access to captive resources.
The JV in Ivory Coast would give Tata Steel access to reserves of over 700 million tonnes of ore and it is expected to invest $1.5 billion (approximately Rs 6,000 crore) over the medium term to develop these facilities.
Supplies from this facility will be critical to Corus at a time when global contract iron ore prices are expected to jump, when long-term contracts come up for renewal next year.
In addition, Corus is expanding its output of saleable steel by nearly 300,000 tonnes in FY08 and a further 350,000 tonnes in FY09, which would require crucial raw material supplies.
Prior to this expansion, Corus’ finished steel capacity was 22.1 million tonnes.
To part-finance its Corus acquisition, Tata Steel is planning to dilute its equity by nearly 43 per cent via its rights issue to raise up to Rs 6,000 crore.
Prior to this development in Ivory Coast, Tata Steel has also been focusing on improving its captive raw material supplies via a JV to develop a hard coking and thermal coal project with Riversdale in Mozambique. At Rs 865, Tata Steel trades at a reasonable 12-13 times estimated FY08 and 9.5 times FY09 earnings.
