Jindal Steel Said to End Afferro Takeover Talks: Corporate India

Jindal Steel & Power Ltd. ended talks to buy Afferro Mining Inc. after assessing its Cameroon iron ore reserves and will negotiate instead with two other African miners, said two people with knowledge of the matter.

India’s most valuable steelmaker may have to invest as much as $2 billion to build railway lines and related infrastructure for the project, which it now judges to be too expensive, said the people, who asked not to be identified, citing confidentiality terms. The exclusivity period for talks with a potential acquirer has ended, London-listed Afferro said yesterday in a statement. The deadline was set for Jan. 13.

Jindal Steel, controlled by billionaire lawmaker Naveen Jindal, has intensified its search for the steel-making raw material in Africa after a project in Bolivia, expected to provide access to more iron ore than all of India’s reserves, failed. Restrictions to curb illegal mining and environmental damages in India are forcing steel-makers to either import ore or purchase mines overseas to ensure supplies to their mills.

“Mines allocations in India are difficult and there are several regulatory hurdles that slow the process of starting a mine,” said Abhisar Jain, an analyst at Centrum Broking Pvt. in Mumbai. “This can jeopardize large investments being made in steel projects in the country. Indian companies are walking a tightrope, as there could be unforeseen problems overseas.”

Other Suitors

Jindal Steel is now in acquisition talks with two companies that have mines in Africa, the people said, without identifying the targets. With the exclusivity period ending, Afferro is free to engage in talks with other potential suitors, including International Mining & Infrastructure Corp., it said yesterday in the statement.

“Further to yesterday’s announcement, we continue discussions with all interested parties as before,” an Afferro spokesman said today in an e-mailed statement.

The shares of Jindal Steel fell 3.1 percent to close at 429.55 rupees in Mumbai. The stock has dropped 14 percent in the past year, compared with a 22 percent gain in the benchmark Sensitive Index. Afferro slumped 10 percent to 82.5 pence at 2:48 p.m. in London, the biggest decline in more than 10 months.

Jindal Steel was close to acquiring an iron ore mine with more than 1 billion tons of reserves in West Africa, Executive Director Manish Kharbanda said in an interview on Oct. 18. The project would need an investment of at least $2 billion in phases, he had said, without identifying Afferro as the seller.

Early Approach

The company’s Nkout mine in Cameroon has estimated reserves of 1.2 billion tons, with iron content of about 33 percent, according to Afferro’s website. Reserves at its Ntem and Akon Hills mines have yet to be established, it said.

“We welcome the opportunity to commence formal discussions and due diligence in connection with the potential acquisition of the entire share capital of Afferro Mining,” International Mining Chairman Haresh Damodar Kanabar said in a speech to shareholders yesterday. The Leicester, U.K.-based company may pay 115 pence to 140 pence for every issued and new share of Afferro, the latter said in a statement on Dec. 31.

“The approach from IMIC is at a very early stage and there can be no certainty that a formal offer will be forthcoming,” Afferro said in the statement.

Jindal Steel plans to spend 350 billion rupees ($6.4 billion) to quadruple capacity to 13 million metric tons by 2015, Deputy Managing Director V.R. Sharma said in a July 19 interview. The expansion hinges on supply of iron ore from local and overseas mines.

El Mutun

In July, Jindal Steel terminated a contract to build the $2.1 billion El Mutun iron ore project in Bolivia, the biggest investment project to be canceled since President Evo Morales took office in 2006. The contract, signed in 2007, would have given Jindal Steel the right to mine 20 billion tons of iron ore, more than double India’s total reserves.

Jindal Steel withdrew from the project after Bolivia offered a quarter of the 10 million cubic meters a day of natural gas originally pledged and failed to provide enough land for the project, New Delhi-based Jindal Steel said on July 17. Jindal Steel wrote off more than $90 million, which it had invested in the project. The company had planned to build a 1.7 million ton-per-year steel plant in addition to a sponge-iron factory, a pellet unit and a power project.

Hajigak Ore

Jindal Steel is part of a group of Indian steel-makers and miners that have been chosen to develop the Hajigak iron ore project in Afghanistan at an investment of $11 billion. The project may also include a steel plant, a railway line and a power plant.

The group is led by state-run Steel Authority of India Ltd. and comprises Rashtriya Ispat Nigam Ltd., iron ore miner NMDC Ltd., JSW Steel Ltd., Monnet Ispat & Energy Ltd. and JSW Ispat Steel Ltd.

“Jindal has so far acquired early-stage mines, where there aren’t great upfront investments involved,” said Prasad Baji, an analyst with Edelweiss Financial Services in Mumbai. “This has helped it de-risk the acquisitions. While the spate of overseas acquisitions has been spurred by the current difficulties, things may change if India manages to harness its resources well.”

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