Sesa Goa’s 150m tonnes of iron reserves at stake

MUMBAI: Steel giants Arcelor Mittal and Rio Tinto are said to have bid at over Rs 2,100 per share for Mitsui Corp’s 51% stake in Sesa Goa. Others in the fray include Vedanta Resources, the Aditya Birla Group and BHP Billiton. At stake for the bidders is Sesa Goa’s 150 million tonnes of iron ore reserves in Karnataka and Goa. Analysts believe that Sesa Goa’s reserves are of low grade and that the present valuation may be too high. “But more than its present reserves, the valuation by the bidders is based more on Sesa Goa’s prospective lease for mines in Jharkhand,” said an observer. Discovery of substantial reserves in Jharkhand will also increase Sesa Goa’s mining life, which as per its last annual report, is 15 years, an observer said.

Recent government regulations allow 100% FDI in mining of minerals and precious metals, which has prompted foreign mining majors to make a beeline for India’s mining sector. However, the rider here is export of iron ore has become a hot potato with the steel lobby strongly opposing it.

The London-based Rio Tinto, which has iron ore reserves in Australia and North America, will be banking on Sesa Goa to finally make a firm presence in India after repeated attempts earlier. It had first approached Mitsui for buying its stake in late 2005, but the talks broke down. The company had also mooted a JV with Orissa Mining Corporation, but without any result. The company produced about 130 million tonnes of iron ore in 2005. Interestingly, India, which has iron ore reserves of 23 billion tonnes, exported about 100 million tonnes of iron ore in 2005.

Industry observers said Arcelor Mittal has been known to be interested in Mitsui’s reserves in other parts of the globe, too. “Its bid in Sesa Goa is part of this interest,” said sources. The Japanese major has reserves in Australia and has about 5% stake in CVRD. Mitsui, whose exit from Sesa Goa is part of its plan to sell off non-core business, had opened its data books for the bidders to conduct due diligence. “In the third round, the company will give access to its production plants for diligence,” said sources. Mitsui, a diversified conglomerate valued at over $8 billion, had bought Finsider International’s 51% in Sesa Goa in October 1996 through the UK-based Earlyguard.