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SAIL-RINL-NMDC to form SPV to buy Rio Tinto assets

ICVL, a five-member consortium of PSU firms, reached an agreement on 28 July with global mining giant Rio Tinto to buy its three coal mines, including an operating one, in the West African country for $50 million. ICVL has to pay the required sum within two months of signing the deal.

Power producer NTPC and world's largest coal miner Coal India, who earlier wanted to disassociate from ICVL but are still under the fold, are not willing to take part in this particular acquisition, a senior Steel Ministry official said.

‘Hence, it has been decided that three firms —SAIL, RINL and NMDC — under the administrative control of Steel Ministry, will form an SPV to acquire Rio Tinto's assets. SAIL will have 48 per cent stake in the SPV while RINL and NMDC will have 26 per cent each,’ he said.

The official said while setting up ICVL in 2009, it was unanimously decided that if a consortium member was not willing on taking part in a particular deal, it can do so. The absence of NTPC and CIL was not ‘an issue at all’, he added.

NTPC and Coal India had earlier expressed their desire to walk out of ICVL on the ground they need thermal coal, while the primary need of SAIL, RINL and NMDC is coking coal.

ICVL's Mozambique deal involves 65 per cent stake buy in Benga and 100 per cent each in Zambeze and Tete East coal assets. Tata Steel has the remaining 35 per cent stake in the operating Benga mine.

These assets have an estimated reserve of 2.6 billion tonnes in which 70 per cent deposits are coking coal and the remaining 30 per cent are of thermal coal. SAIL, RINL and NMDC might use the thermal coal, mainly for power generation, for their captive use.

There is significant potential for tapping CBM (coal-bed methane) from the acquired coal resources and the SPV of the three firms might rope in a technological partner to do the job on their behalf.

The official said the SPV might have to invest around $300 million for enhancing coal output from the Benga mine to 12 million tonnes per annum from 5 mtpa now if it opts for a Mine Development Organisation (MDO) to do the job. Rio Tinto had estimated $700 million for doing the job on its own.

‘A decision on the choice of the route will be taken at an appropriate time,’ the official said. Coking coal from the mines would help all the three firms reduce their reliance on imports and provide a buffer from the effects of fluctuating international prices, which might otherwise impact their profitability.

SAIL and RINL are both increasing their capacity to 23 mtpa and 6.3 mtpa respectively. Their requirement of coking coal would increase to a level of about 25 MT by 2015. NMDC is also in the process of setting up a 3 mtpa capacity integrated steel plant at Nagarnar in Chhattisgarh.
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