February 2010
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NMDC to pay $2.5 bn for 50% stake in Ferrous' Brazil ops

State-owned NMDC is set to pick up 50% stake in the Ferrous Resources Ltd’s Brazilian operations for $2.5 billion, marking the first overseas foray by India’s largest mining company.
NMDC has signed the non-disclosure agreement with the Ferrous group, a multinational consolidator of iron ore with properties in several countries, such as the US, Brazil and Canada, said two senior executives familiar with the development.

Under the proposed deal, the Ferrous group will issue fresh shares worth $2.5 billion to NMDC over the next few years. The funds will be used for developing mines and building infrastructure, said a senior executive who was part of the negotiations.

After the consummation of the agreement, the partners will divest 20% stake in the joint venture to raise another $1 billion. They plan to list the venture on the London Stock Exchange, said a company official. “As a result of dilution of stake, NMDC’s stake in the joint venture will come down to 40%. However, both partners will have equal ownership in the company,” he said, requesting anonymity.

“NMDC is looking for natural resources across the markets,” chairman Rana Som said, while refusing to confirm the development. The company is looking at acquiring assets that will help in providing energy and food security and strengthen the infrastructure sector of the country, he added.

The Ferrous group had raised $514 million in 2008. The group targets to produce 50 million tonne of saleable iron ore per annum through expansion of mines and processing facilities. It is also planning to construct an iron ore slurry pipeline and a new captive port.

The Brazilian venture has around 3 billion tonne iron ores reserves with 35.6% grade (Fe) content. In addition, it has an estimated 1.6 billion tonne reserves of 30% Fe mines. Once operational, the mines could produce about 25 million tonne of iron ore initially that could be converted into 10 million tonne of high 67% Fe grade ore concentrate through beneficiation.

“At present value, this concentrate could provide Rs 2,000 crore revenue to the venture,” said the executive.

The Ferrous group is developing new private sea port in Brazil to export its iron ore products. The mines are located within 300 km from sea and close to Brasilia.

A senior official in NMDC said the company is not looking at taking complete control of any foreign firm. “Joining hands with existing partners help in mitigating the risk,” he said.

In addition to its Brazilian venture, NMDC is also exploring joint mining opportunities with ArcelorMittal in Africa and is working towards a collaboration with Rio Tinto for third country exploration activities. It is also looking at partnerships with Tata Steel and Spice Energy.

NMDC has line up expansion plans that involve an investment of Rs 26,000 crore over next few years. The company has cash reserves of around Rs 13,000 crore that is also expected to be used for buying overseas assets.

NMDC’s iron ore production in the country is close to 30 mt. It reported a net profit of Rs 4,350 crore on a turnover of Rs 7,500 crore in 2008-09.

The company is also planning to undertake forward integration of its business by setting up a steel plant. It is setting up a 3 million tonne steel plant in Chhattisgarh and exploring opportunity to tie up with ArcelorMittal for its proposed 10mt steel plant in Karnataka.

In coal, NMDC has sought collaboration with CIL for joint mining activities. It is also looking at partnerships with private sector companies such as KSK Energy, Tata Power and Monnet Ispat for coal mining opportunities.

Source: Economic Times

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