Sajjan Jindal led-JSW Steel in talks to buy stake in London Mining

KOLKATA | MUMBAI: Sajjan Jindal’s JSW Steel is believed to be in talks to acquire a stake in London Mining, a debt-laden British mining company with iron ore resources in Sierra Leone.

At a time when a 42% dip in global ore prices this year has impacted valuations of iron ore assets and Sierra Leone has been fighting the deadly Ebola virus, analysts say JSW Steel could bargain and get its hands on a prized property at a relatively low price.

The development, which was reported widely in a section of global media, comes close on heels of JSW Steel’s bid for Italy’s Lucchini and Ilva steel plants.

Analysts say the company seems to be following a well-drawn strategy of trying to pick up debt-laden assets.

“This is in line with JSW’s strategy of looking out for backward and forward integration outside India, while focusing on basic steelmaking within the country,” Goutam Chakraborty, analyst at Emkay Global, said. If the company is able to clinch the deal with London Mining and use the ore to meet its requirements in India it could be “a perfect blend”, he said.

Sajjan Jindal has been able to pocket relatively small, inexpensive and mostly loss-making companies in the last 10 years while continuing to add capacity in its largest steel plant in Karnataka.
The list includes Southern Iron and Steel Company in Tamil Nadu, Ispat Industries in Maharashtra, Punjab’s Vallabh Tinplate and Ispat’s neighbour Welspun Maxsteel.

Both the companies on Jindal’s radar in Europe are also bankrupt. London Mining — which owns 100% of Marampa mine in Sierra Leone that is set to produce 5 million tonnes of iron ore in the first phase — has been seeking a white knight since May to help reduce debt, fund its capital expenditure over the medium-term and potentially accelerate growth plans. The company is also developing two other iron ore assets in Saudi Arabia and Greenland.

London Mining is in a desperate need to get an investor into the company today as it does not have enough cash to operate its only mine. It told analysts in July that it expects to get a strategic investor by the end of this year.

The company recently told investors that it is in detailed negotiations with a potential strategic investor to make an investment in the group for funding of the life of mine expansion and a material cash injection.

“The proposed investment as currently structured is expected to require a number of weeks to implement, and there can be no certainty that such discussions will be successful,” it had said.

Analysts have warned that going alone is no longer an option for London Mining and without new funds the company’s ‘going concern’ is at risk.

JPMorgan in a report in September said, “Without new funding, on our revised forecasts we estimate London Mining will run out of headroom by mid-2015 and be unable to fund the estimated $90 million in capex required to sustain 6.5 million tonnes of production from weathered ore until 2019.”

The deal could also involve a strategic alliance with African Minerals, a London-headquartered mineral exploration and mining company with assets in Sierra Leone, which is developing an iron ore asset in Tonkolili along with rail and port infrastructure.

JSW Steel has decided to import 6 million tonnes of iron ore this year, which will meet 20% of its needs, to overcome supply issues following the mining crisis in Karnataka.

Analysts say iron ore prices are likely to remain under pressure in the next two years. “Even in the face of record price drop, the big three in iron ore market — Vale, Rio Tinto and BHP — are expanding capacity. It seems to indicate they are moving towards a volume game that will keep prices low,” a mining sector analyst said.

This could offer JSW Steel assured supplies and the advantage of a lower cost of production from captive ore against market-linked ore.