April 24 (Bloomberg) -- Vedanta Resources Plc agreed to buy Mitsui & Co.'s entire stake in Indian iron-ore exporter Sesa Goa Ltd. for $981 million, defeating rivals including Arcelor Mittal to secure supplies of the steel-making raw material.

Vedanta, the biggest producer of copper and zinc in India, will pay 2,036 rupees ($49) per share for a 51 percent stake, 17 percent more than yesterday's closing price. Vedanta will offer to buy a further 20 percent at the same price. Adviser Nomura Holdings Inc. will lend $1.1 billion to fund the takeover.

Chairman Anil Agarwal beat fellow Indian billionaires Lakshmi Mittal and Kumar Mangalam Birla to secure mines in three states as demand from China drives iron-ore prices to records. Anglo American Plc said yesterday it will 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,'' Michael Skinner, a London-based analyst at Standard Bank Plc, said by phone from Dubai. ``Vedanta will look for an integrated model and wants to start right at the beginning. Everybody is looking for raw materials.''

Competition for Sesa Goa drove its shares to a record 2,000 rupees on Jan. 29. Vedanta is paying 31 percent more than the stock's six-month daily average to get 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 percent.

`Pure Metal'

Sesa Goa may help shield Vedanta's earnings from volatility in metal prices. Copper reached a record $8,800 a ton in May and fell 28 percent from the peak through Dec. 31, 2006. Prices have gained 26 percent this year. Zinc fell 27 percent between Jan. 1 and Feb. 2, before recovering 21 percent since. 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.

``Vedanta probably wants to balance the volatility in its metals basket by adding iron ore,'' said Niraj Shah, an analyst at Prabhudas Lilladher Pvt., a Mumbai-based brokerage. ``It doesn't want to be a pure metals company.''

Baosteel Group Corp., China's biggest steelmaker, will need to buy 90 percent more iron ore a year by 2012 when it plans to more than double output. Baosteel, which used 42 million tons of ore in 2006, will need 80 million tons to meet the output target, Li Qingyu, chief executive of Shanghai-based Baosteel Trading Co., said in slides prepared for a conference in Beijing today.

``The phenomenal commodities of tomorrow are iron ore and coal,'' Vedanta Chairman Anil Agarwal said in Mumbai today. ``We will help unleash the potential of tomorrow.''

`Media Speculation'

Lakshmi Mittal and Birla Group's Essel Mining & Industries Ltd. bid for Sesa. Mittal offered 2,200 rupees a share, while Essel bid about 2,000 rupees a share, the Economic Times said April 10, citing unidentified people.

Sesa Goa shares fell 44 rupees, or 2.5 percent, to 1,698.55 rupees at close in Mumbai, valuing the company at $1.62 billion. The stock rose as much as 9 percent earlier.

``There was speculation in the media of a higher price,'' said R.K. Gupta, who manages $70 million in stocks at Credit Capital Asset Management in New Delhi. ``That could be the reason'' for the decline in shares.

Vedanta acquired all of Mitsui's Finsider International Ltd., which owns the holding. The company said 71 percent of Sesa Goa will cost $1.37 billion. The $1.1 billion loan will be raised at between 50 basis points to 60 basis points over the London Interbank Offered Rate, Agarwal said.

Shares of Vedanta were little changed at 1411 pence.

Open Offer

The offer to buy shares from investors will be announced in four days and run for three months. Sesa Goa won't be de-listed after the acquisition, Agarwal said. Under Indian law, a company buying more than 20 percent of another company must make an offer to acquire a further 20 percent of its shares.

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, according to its Web site. Production can be raised to 15 million tons, Deputy Chairman Navin Agarwal said.

``We believe that there is opportunity to expand the company through de-bottlenecking and low-cost expansions,'' he said on a conference call.

Mitsui invested in October 1996. The company expects to get an after-tax gain of 50 billion yen ($422 million) from the sale, it said in a statement today.

Morgan Stanley advised Mitsui on the sale.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

Last Updated: April 24, 2007 06:20 EDT