Following the shipment of the second stage, on May 17th 2016, NSL made a very unexpected announcement. The company entered a memorandum of understanding (MoU) for joint development of a greenfield steel plant to be constructed and operating in Andhra Pradesh.
The joint venture was with the Wei Hua Group Co Ltd, China’s largest heavy equipment crane company with revenues in excess of US$1 billion in 2015.
The joint venture would be a 50/50 with no funding required from NSL. NSL would have the option to sell iron ore to the steel plant. This MoU would later be converted into a binding agreement on June 27th 2017.
As per announcement:
"The Joint Venture Company will be established with a 50/50 shareholding, and importantly NSL is not required to fund any aspect of the Joint Venture.
NSL will be responsible for all associated approvals for the construction and operation of the steel plant. This forms the basis of the Company’s free carry 50% shareholding.
These approvals range from land, power, water, other utilities, roads, and environmental clearances.
When the steel plant is in operation NSL will be responsible for the operation of the steel plant, culminating with the marketing and the sales of the finished product.
NSL has the option to sell iron ore to the steel plant or into the local market at market prices.
Wei Hua to provide all steel mill equipment, with majority already acquired and ready for deployment. Some of this equipment includes but is not limited to; blast furnace shell, cast iron staves, inlaid spheroidal graphite staves, AG scrubber, AG element, pump station, gravity dust separator.
Wei Hua Group Co Ltd, with revenues in excess of US$1 billion in 2015, has already acquired significant parts of the future steel making plant, with the remainder to be purchased as required, based on Indian progress. Wei Hua is looking to diversify its revenue stream, both in location and source generation (Reference http://www.weihuagrp.com/).
Wei Hua views the Indian economy as one of the most attractive up and coming investment opportunities in the world. India is expected to become the world's second largest producer of crude steel in the next 10 years, moving up from the third position, as its capacity is projected to increase to about 300 MT by 2025 from 81 MT in 2013-14.
Huge scope for growth is offered by India’s comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors. In addition to this, Wei Hua also sees significant value in what NSL has been able to achieve in India, as the only foreign company to own and operate iron ore mines and also with the significance and progress made by the Company and the Andhra Pradesh Government (GoAP) as part of the existing joint MOU.
The Wei Hua Group has already been procuring key components for a steel plant, and has the majority warehoused in China ready for deployment."
The third and final shipment of components/infrastructure was ready on June 10th for shipment the following day, all roughly remaining on schedule.
Following the shipment of the second stage, on June 27th 2016, NSL announced that the MoU (see May 17th 2017) with the Wei Hua Group had been converted into a binding joint venture agreement. There were slight variants to some of the details within the MoU announcement, so it’s worth comparing.
As per announcement:
" Key Terms of Agreement
The Joint Venture Company will be established with a 50/50 shareholding and importantly, NSL is not required to fund any aspect of the JV. NSL shall provide reasonable assistance to Wei Hua for the feasibility studies, including the latest market research report on the Iron and Steel industry in India which will assist in determining the size and scale of the proposed steel plant project.
NSL shall conduct a study to understand the governmental approvals, licences, consents, no-objections etc. required from statutory, governmental and other authorities under the laws of India for the proposed project, setting up of the JV, and commencement of the preliminary activities for the project.
This will be undertaken, in consultation with Wei Hua and NSL shall seek reasonable assistance from Wei Hua. NSL shall commence the preliminary activities for obtaining and providing the legal and regulatory approvals, accessing available land and shall take all appropriate steps towards the supply of supplementary materials and human resources. NSL shall thereafter be responsible for the operations, commercial marketing and sale of the steel products, on an exclusive basis.
Wei Hua shall carry out its feasibility for the steel market in India from a technical, financial and legal perspective, with reasonable assistance from NSL where sought by Wei Hua.
Wei Hua shall provide the equipment which shall be delivered free of charge and as per a mutually-acceptable delivery schedule, prepared by both parties.
The Parties shall jointly discuss and finalise JV Shareholder and Operating Agreements in a timely manner, post completion of feasibility studies.
Both Parties shall collectively approach and apply for financing from Asian Infrastructure Investment Bank and shall collectively ensure that the proposed project contributes to enhancing the welfare of the local community and economic and social development in the area.
The binding agreement is valid for a period of 12 months, or as extended by the parties in writing; or either party may terminate by giving 30 days’ notice."
On August 1st, the state government issued a letter of assurance to NSL Consolidated for land and approvals.
Within the announcement were again slight changes to the key terms of the agreement between NSL and Wei Hua.
As per announcement:
"Key Terms of Agreement
The Joint Venture Company will be established with a 50/50 shareholding and importantly, NSL is not required to fund any aspect of the JV.
NSL shall provide reasonable assistance to Wei Hua for the feasibility studies, including the latest market research report on the Iron and Steel industry in India which will assist in determining the size and scale of the proposed steel plant project.
NSL shall conduct a study to understand the governmental approvals, licences, consents, no-objections etc. required from statutory, governmental and other authorities under the laws of India for the proposed project, setting up of the JV, and commencement of the preliminary activities for the project.
This will be undertaken, in consultation with Wei Hua and NSL shall seek reasonable assistance from Wei Hua. NSL shall commence the preliminary activities for obtaining and providing the legal and regulatory approvals, accessing available land and shall take all appropriate steps towards the supply of supplementary materials and human resources.
NSL shall thereafter be responsible for the operations, commercial marketing and sale of the steel products, on an exclusive basis.
Wei Hua shall carry out its feasibility for the steel market in India from a technical, financial and legal perspective, with reasonable assistance from NSL where sought by Wei Hua.
Wei Hua shall provide the equipment which shall be delivered free of charge and as per a mutually-acceptable delivery schedule, prepared by both parties. The Parties shall jointly discuss and finalise JV Shareholder and Operating Agreements in a timely manner, post completion of feasibility studies.
Both Parties shall collectively approach and apply for financing from Asian Infrastructure Investment Bank and shall collectively ensure that the proposed project contributes to enhancing the welfare of the local community and economic and social development in the area.
The binding agreement is valid for a period of 12 months, or as extended by the parties in writing; or either party may terminate by giving 30 days’ notice."
The most notable change across the three announcements that described the terms of the agreements was the addition of the two parties approaching the newly formed (at the time) Asian Infrastructure Investment Bank (AIIB) for financing.
The AIIB has already committed hundreds of millions in financing throughout India since its inception.
By August, all equipement was finally on site, all of which those of us on the forums tracked via shipping tracking online, mostly just so we could have a sense of progress as the weeks rolled on bye.
On September 6th, the company announced that the wet plant erection stage remained on schedule. At the time, it was envisaged that the company would be cash flow positive by Q4 2016.
On September 28th, the company announced that commissioning had begun.
As per announcement:
"The Phase Two wet plant commissioning program has now commenced. Commissioning has initially begun with the mechanical and electrical components of the plants four process tanks, agitators and mixers undergoing no-load and load testing. The commissioning will continue with further plant and equipment to follow, according to the Company’s project schedule."
(20min delay)