Bhushan Steel eyes 15% in Aussie firm

CORPORATE SCORECARD

Bhushan Steel is set to pick up a 15 per cent stake in Australian exploration company Bowen Energy.

A memorandum of understanding (MoU) to this effect has already been signed. Bowen has acquired some 2,100 sq kms of prime exploration ground in the heart of the Bowen Basin close to major mines operated by BHP, Rio Tinto, Xstrata and Anglo Coal.

According to the agreement, the completion of the MoU will provide Bowen opportunities to capitalise on Bhushan's raw material needs and capacity to contribute to the company's ongoing working capital and future funding requirements. Bhushan will also have a board representation in Bowen.

When contacted, Rajiv Agarwal, vice-president (commercial), Bhushan Steel, confirmed that an MoU had been signed and the idea was to supply coking coal to the company's proposed 3.1 million tonne plant in Orissa.

The first phase of 0.5 million tonne was already onstream. Bowen's projects include several coking coal, thermal coal and uranium exploration licences. As of now, Bowen has only exploration licences.

The transaction is subject to due diligence by both the parties and shareholders' approval from Bowen's side.

Bowen and Bhushan are expected to complete the due diligence and enter into a security subscription agreement within a four-to six-week time period. Agarwal said, the company had made a small beginning with Bowen, once it is well heeled into the Australian working culture, it can explore bigger investments.

For Bowen's existing and future coal projects, Bhushan will be given the first rights of refusal. If Bhushan exercises its right then it will be required to fund all development costs through commercial feasibility and all subsequent costs of the required design, construction and commissioning of the project.

Bowen will retain a 10 per cent free carry interest in any coal projects that Bhushan exercises its first rights of refusal. Indian steel companies are increasingly looking at covering their input costs.

Coking coal accounts for around 50 per cent of the raw material cost.

Coking coal requirement of the Indian steel industry is around 30 million tonne, against a domestic production of 7.5 million tonne. Moreover it has to be blended with imported coal to make it suitable for use.