Jindal Steel to invest $2.3 bn in Bolivia

After a round of week-long negotiations, the Naveen Jindal-controlled Jindal Steel and Power Ltd (JSPL) has finally bagged the El Mutun iron ore mines in Bolivia. With deposits of 40 billion tonnes, the mines are believed to be one of the largest iron ore reserves in the world.

Representatives of Jindal Steel and the Bolivian government had been in talks since May 24 on the royalties to be paid to the latter. A final agreement was hammered out yesterday.

"The conditions are that we will have to pay a royalty of 8-9 per cent for iron ore, 10 per cent for concentrate (pellets), 7 per cent for sponge iron and 5 per cent for steel, all on exports," JSPL Executive Vice-Chairman and Managing Director Naveen Jindal said, adding: "Another clause is that the surplus production will be exported only after catering to the domestic market there."

Apart from developing the mines, JSPL would set up a fully integrated steel plant with a capacity to produce 1.7 million tonnes per annum (MTPA) of long products, 6 MTPA of sponge iron and 10 MTPA of pellets, and supporting infrastructure, including a 400 Mw power plant and a rail or road link to the nearest river port.

It is expected to provide direct employment to 2,000 people and indirect employment to 10,000 people in Bolivia, South America's poorest country.

"The final contract will be signed only in July and we will have to submit a detailed project report (techno-economic feasibility report) within 60 days," Jindal told reporters through teleconference from London, on his way to the South American country.

Out of the total investment of $2.3 billion, about 20 per cent would go into mining and the balance 80 per cent in setting up the integrated steel plant, he added.

JSPL would now float a fully-owned subsidiary for the project in Bolivia, with a debt-equity ratio of 60:40. The company plans to raise the required amount, of which it would have to invest $1.5 billion in the initial five years, from banks and other financial institutions in the international market, Jindal said, also hinting at issue of FCCBs.

The company expects to earn an internal rate of return of 15-20 per cent on the investment. The project will start production of pellets in 2009 and long steel in 2011. The maximum revenue will start flowing from the fifth year (2011).