Stemcor’s Indian assets include iron ore mines, but for all practical purposes its a gold mine for its suitors. It is not a surprise that the biggest names in Indian mining and steel space have lined up for the British steel trading company’s business in India. This includes Tata Steel, Essar Steel, Jindal brothers and Gautam Adani. While there are rumours that state-owned Steel Authority of India, or SAIL, is also interested, the company has refuted this.
It is sad that Stemcor’s Indian business is paying the price for the problem at the parent’s side. As I had written in 2010, margins in steel trading have reduced over the years. Stemcor’s revenues, which had peaked at $11 billion in 2009, have come down to about $7 billion in 2012. A majority of it owned by the Oppenheimer family, the company was forced to request for a grace period from its lenders after missing a deadline for repayments. Stemcor has debts of $2 billion.
Though its Indian unit, led by its dynamic MD Matthew Stock, had tweaked its traditional business model and had acquired iron ore mines in Odisha. It had also built a iron ore beneficiation plant, which refines low grade iron ore into pellets that can be used to make steel. Stemcor had taken this model to Australia, where also it developed mines.
Ironically, the two businesses now in India and Australia are coming to their rescue. Both will be sold to bring in required money as the company talks with its lenders in London to restructure its debts.
Its mines in Odisha have reserves of 100 million tonnes and the plant has an annual capacity of 4 million tons. The infrastructure includes a 230 km-pipeline that connects the mines to the plant. The plant has not been commissioned yet as the company still awaits forests clearance for a part of the project. But that will be minor hindrance for its suitors. The original plan was to sell the pellets to the scores of new steel plants that were suppose to be coming up in the state. This includes that of Tata Steel, JSPL and Essar Steel.
Though Tata Steel has an iron ore mine in the state, these reserves are linked to its plant in Jamshedhpur. The company is yet to get mines that will supply the new steel plant coming up in Kalinga Nagar. Similarly, other players too are yet to get mines for their plants. The ready-to-use infrastructure along with the mines of Stemcor has now everyone salivating at the prospects. Reports say that the assets are valued at $800 million, but looking at the opportunity and the competition in hand, the final sale price might cross $1 billion. In an interesting twist, Stemcor’s employees in India might also put in their hats. They are backed by minority partner industrialist Sanjay Saraf.
After Sesa Goa was put on the block by its Japanese owners and was later acquired by Anil Agarwal’s Vedanta Resources, this is the biggest mining asset that has gone up for sale in India. Right now, there are no favourites, making the contest even more intriguing!