Jindal Steel & Power Ltd. (JSP), India’s third-largest steelmaker by value, is in talks to acquire an iron ore mine in Liberia as environmental hurdles at home prompt it to look overseas, said two people familiar with the matter.
The target is the Wologizi mine and negotiations are on with the government of the West African nation for approvals, one of the people said, asking not to be identified before an official announcement. A final decision is expected by the end of September, the person said.
Jindal Steel, which scrapped purchase talks with Afferro Mining Inc. (AFF) in March and wrote off more than $90 million after abandoning a Bolivian iron ore project last year, is betting on Liberia’s need for foreign investment to grow a postwar economy. The New Delhi-based company has struggled to get new iron ore mining permits in India, where it also faces charges it manipulated coal-mine allotments by the government.
“Jindal Steel needs more iron ore to fulfill its needs following its steel capacity expansion and also to create a natural hedge,” said Rahul Jain, an analyst with CIMB Securities India Pvt. in Mumbai. “There’s an opportunity to buy iron ore mines now, given the fall in commodity prices leading to lower valuations.”
Global iron ore prices have declined 20 percent this year, compared with a 2 percent drop in the same period last year, according to data compiled by Bloomberg. Ore at China’s Tianjin port fell to $115.30 a ton as of June 27.
Jindal Steel shares gained the most since Sept. 14, climbing 8.1 percent to 217.45 rupees at the close in Mumbai. The stock has fallen 51 percent this year, compared with a 0.2 percent drop in the S&P BSE Sensex.
The Central Bureau of Investigation started probing Jindal Steel this month for possible irregularities in the allocation of mines to the company owned by lawmaker Naveen Jindal. The Comptroller & Auditor General of India said in August giving away mines to non-state companies without an auction has cost the government 1.86 trillion rupees.
Jindal Steel will cooperate with the probe, Manu Kapoor, head of external affairs, said by e-mail on June 11.
The company posted a worse-than-expected 35 percent drop in profit in the three months ended March 31 as alloy prices fell and costs rose. Earnings as a share of sales before interest, tax, depreciation and amortization shrank to 34 percent, the narrowest in at least seven years, according to data compiled by Bloomberg.
Should Jindal Steel win the Wologizi mine, it will be the second major Indian investor behind billionaire Anil Agarwal-owned Sesa Goa Ltd. (SESA) in Liberia. Sesa, aiming to build 30 million metric tons of mining capacity in Liberia, plans to invest $2.4 billion in its three properties in the nation. Global investors in West Africa include ArcelorMittal, the world’s biggest steelmaker, and miners Vale SA and Rio Tinto Group.
Jindal Steel is in the process of spending 200 billion rupees ($3.3 billion) in the two years ending March 31, 2015, to double steelmaking capacity and triple electricity generation. The spending also includes expanding its steel capacity in Oman and buying iron ore and coal assets.
The company, which runs a 3 million ton steel plant in the central state of Chhattisgarh, is building a mill each in the eastern states of Odisha and Jharkhand and a factory in Oman.
Ravi Uppal, managing director of Jindal Steel, didn’t answer a text message and two calls to his mobile phone seeking comment.
The final investment in exploration and infrastructure such as roads for transporting iron ore will exceed the initial spending, one of the people said, without specifying the total expenditure. Jindal Steel is looking for deals of $20 million to $200 million in greenfield iron ore mines, Group Chief Financial Officer Sushil Maroo said in an interview on March 12.
Jindal Steel is looking at acquiring iron ore mines in African nations, Ukraine, Indonesia and Australia to feed its post-expansion requirements in India and Oman, Maroo said in March. A deal may be signed before the end of the calendar year, he then said.
In Liberia, Sesa Goa is in the process of hiring mining contractors to start operations in Bomi, the site for the first phase of the project. The contractor will carry out mining activities, including drilling, blasting, loading and hauling. The company, which acquired the asset by buying Western Cluster Ltd. in August 2011, is targeting production by March.
Jindal Steel’s effort to secure raw material assets intensified after it terminated the $2.1 billion El Mutun iron mining contract. The company also shied away from acquiring Afferro in Cameroon in February, saying much of the proven iron ore reserves were low grade and it would have to spend “billions of dollars” to create the required infrastructure.