Ore Deficit Said to Lure JSW to Stemcor Asset: Corporate India

JSW Steel Ltd., India’s third-largest producer, is considering buying the local assets of debt-laden Stemcor Holdings Ltd. to gain iron ore mines, said two people with direct knowledge of the matter.

The London-based steel trader has been approached by JSW for the assets, which include a pellet plant and a slurry pipeline, the people said, asking not to be identified as the deal is in the initial stages. Stemcor produces 5 million metric tons of the key steelmaking raw material a year in the eastern state of Odisha and has reserves of more than 100 million tons, they said, without specifying offer terms.

Stemcor Holdings is asking lenders for more time to repay an $850 million loan as adviser Goldman Sachs Group Inc. prepares to market the company’s Indian assets for sale, two people with knowledge of the matter said in May. The assets may be valued at 65 billion rupees ($1.1 billion) provided all approvals are in place, said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai. Mumbai-based JSW, which doesn’t own any iron ore mine in India, is struggling to find raw material for its annual 14 million ton plant capacity.

‘Grab Opportunity’

“JSW would like to grab this opportunity to have some raw material asset in its stable,” Daga said in a phone interview. “This asset may help JSW cut costs by at least 27 percent per ton at current prices, which is a huge saving.”

Shares of JSW fell 3.5 percent to 560.30 rupees in Mumbai today, the most since July 3. The stock has declined 30 percent this year, compared with a 34 percent drop in the S&P BSE Metal Index and a 3.4 percent gain in the benchmark S&P BSE Sensex.

“We don’t want to comment on any specific proposals based on market speculation,” JSW spokesman Manish Mallick said in an e-mail. Charles Armitstead, a London-based external spokesman for Stemcor, declined to comment.

Stemcor Holdings had asked lenders to extend a standstill accord by three months to Sept. 16, said the people, who asked not to be identified because negotiations are private. Goldman Sachs will draw up proposals to dispose the properties.

JSW had been forced to operate at a lower capacity due to a shortage of ore following mining restrictions in the southern state of Karnataka, where its biggest plant is located. JSW’s capacity expanded after it acquired a factory in the western state of Maharashtra with its 2010 purchase of Ispat Industries Ltd.

Indian Stakes

Stemcor has stakes in Indian iron ore producer Aryan Mining & Trading Corp., Brahmani River Pellets Ltd. and Mideast Integrated Steel Ltd., according to a company presentation. The closely held company also owns a slurry pipeline connecting the iron mines with the pellet factory.

Imported ore with 62 percent iron content at the port of Tianjin, a global benchmark, slid 24 percent to a low of $110.40 a ton on May 31 before recovering 19 percent to $131.90 a ton yesterday, according to a price index compiled by The Steel Index Ltd.

Restocking by China, the world’s biggest consumer and producer of steel, is driving iron ore prices higher, Anthony Rizzuto, an analyst at Cowen & Co. in New York, wrote in a note yesterday. Chinese steelmakers including Hebei Iron & Steel Group and Jiangsu Shagang Group Co. joined their Japanese peers in raising prices this month after Premier Li Keqiang signaled China may support economic growth.

Jindal Steel

Jindal Steel & Power Ltd., owned by Naveen Jindal, the younger brother of JSW Chairman and Managing Director Sajjan Jindal, was in talks with Stemcor for buying a stake in a pellet plant, the Economic Times newspaper reported on July 9, without disclosing the source of its information. Stemcor is expecting a valuation of $300 million, the report had said. Ravi Uppal, managing director of Jindal Steel, didn’t answer two calls to his mobile phone seeking comment.

Production at JSW, which expanded annual capacity at its Karnataka factory to 10 million tons from 6.8 million tons in 2011, fell after the Supreme Court placed a ban on iron ore mining in the state in July of the same year to probe environmental breaches. Capacity use had fallen as low as 30 percent, Sajjan Jindal had said in September, 2011. The Supreme Court allowed mining to restart in the province in a Sept. 3 order last year.

“JSW has a greater need to secure iron ore to integrate with its steel factories,” Chirag Shah, an analyst at Barclays Plc, said in Mumbai. “They should be keen on buying assets as they don’t have any mine right now.”

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