Essar sweetens Aussie coal miner bid 8 Oct 2009 MUMBAI: The stage is set for yet another bidding war for ownership of an overseas resource company. Essar Minerals and Delhi-based Jindal Steel & Power are in race to acquire Perth-based coal and coke producer Rocklands Richfield, which will increase their ownership of key resources and lower production costs in their businesses.
The Essar Group company on Wednesday confirmed that it had put in a bid of 50 cents for every share of Rocklands, which is higher than the earlier bid of 42 cents put in by Jindal Steel.
Essar’s bid values the Australian coal company at A$144 million. The company had revenue of A$125.60 million in the previous fiscal year.
Essar’s bid could prompt Jindal Steel to revise its bid, although executives from the Delhi-based company declined to comment. This won’t be the first time that Naveen Jindal-run Jindal Steel would be involved in a bidding race.
In 2007, Jindal Steel took on ArcelorMittal in a bidding war for iron ore mines in Bolivia. Jindal Steel finally outbid ArcelorMittal to take development rights for the iron ore mines, which have reserves of 20 billion tonnes.
The directors of Rocklands Richfield will convene a board meeting later to consider the merits of both Jindal’s and Essar’s bids, to determine which is superior. “Both offers are preliminary proposals that are subject to due diligence,” said a statement from Rocklands Richfield. “This announcement is being made only in the interests of updating shareholders on developments in relation to competing preliminary proposals.”
The A$125.60-million Rocklands Richfield owns a series of high-grade coking coal deposits in the Bowen Basin of Queensland and the coal deposits are estimated to total about 880 million tonnes. Coal, a key raw material for industries such as steel and power, has been a much-sought after commodity with most Indian companies scouting globally for coal mines.
“Essar Minerals has been looking for mining assets in Australia and Indonesia and this is yet another step in that direction,” said a person familiar with the development. While the Essar Group company is unlisted, shares of Jindal Steel closed marginally down at Rs 598, after reaching a high of Rs 609, in a market that fell 0.9%. The rush to own coal mines is likely to create a shortage for the commodity, thus pushing up prices.
According to brokerages, there could be a shortfall of about 25% in coal availability over the next 5-6 years, which could likely affect power and steel production.
The shortage has also prompted foreign coal producers to offer long-term supplies in return for an equity shareholding in Indian power and resource companies. While offtake agreements have been common, the coal and ore firms have planned ownership swaps to assure coal supplies at a discounted rate.
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