Essel Mining to buy Indonesian co for $180m

MUMBAI: Essel Mining & Industries, the unlisted unit of the Aditya Birla Group, is close to acquiring a mining company in Indonesia for $180m in one of the biggest deals in the mining sector. The company has the capacity to mine about five to 10m tonnes of coal a year, with the reserves estimated at over 400m tonnes.

Essel Mining had shortlisted several companies and is believed to have narrowed down the number. Other than catering to the Indian market, the acquisition will help Essel export coal to South Korea, Japan and Taiwan. The reserves will also be used for the group’s own plants in India.

Essel had initially conducted studies in South Africa, Australia and Indonesia for possible mining assets. Though Australia has a transparent economy, lower asset rates and cost of production, better transportation logistics and proximity to India is believed to have tilted things in Indonesia’s favour.

Ravi Kastia, group executive president and business head, declined comment. The latest move is a shift from the company’s earlier plan of bidding coal mining licences in the south-east Asian country.

“But the autonomy rules in the country, passed three years ago, gave the right to grant mines to the local district administration. This has made the issue locally sensitive and bidding for licences risky,” said industry sources.
Permission to acquire companies rests with the central government. Essel, therefore, does not see any problems with the deal.

The acquisition will be one of the biggest for the Indian mining sector where exploration in coal is still a prerogative of public sector companies. Essel Mining is one of the largest iron ore mining companies in the non-captive private sector with reserves of almost 200m tonnes. Last year it produced 7m tonnes of iron ore. The company is the country’s largest producer of noble ferro alloys like molybdenum, vanadium and titanium.

The Aditya Birla Group already has a substantial presence in Indonesia with five of its subsidiaries producing yarn, viscose staple fibre and carbon disulphide. The country has also become a favourite for Indian steel companies.
While Tata Steel has mentioned that Indonesia is one of its growth markets, JSW Steel is supposed to be conducting studies for possible acquisition of coal mines. Essar Steel has set up a 0.4m tonne per annum cold rolling complex in the country.

Essel has mining operations at Barbil in Orissa’s Keonjhar district and its ferro-chem division is situated at Vapi in Gujarat. The company had recently announced an investment of Rs 200 crore to increase its production to 9m tonnes in two years.