Tata Steel to buy more iron ore from OMC after Bhushan Steel takeover

After the successful takeover of Bhushan Steel Ltd, Tata Steel is looking to bolster its iron ore supplies to help operate the acquired plant at its full rated capacity.

The Bhushan Steel facility located at Meramandali in Odisha, nearly 150 km from its Kalinganagar greenfield plant, has a nameplate capacity of 5.6 million tonnes per annum (mtpa). Though Bhushan Steel has won the Kalamang iron ore block in competitive auctions in the state, mining has not taken off yet from the block. To ensure an uninterrupted flow of iron ore to the Bhushan Steel unit and also to cater to the ramp up of its Kalinganagar capacity to eight million tonnes per annum. Tata Steel is looking to buy more ore from external sources including the state owned Odisha Mining Corporation (OMC). The steel maker's captive iron ore resources in Odisha are primarily feeding its Jamshedpur plant.

"After the Bhushan Steel acquisition, we are now in the process of settling down. We are considering many options for iron ore and we are open to buy from external sources", said a Tata Steel source.

OMC sources confirmed Tata Steel was pitching for more iron ore supplies. Presently, the steel company is drawing one mtpa from OMC mines under a long-term linkage pact.

"Tata Steel has submitted an application for sourcing five mtpa iron ore from OMC. The proposal will go to the allotment committee for scrutiny," said an official source. The allotment committee chaired by principal secretary (industries), Odisha decides on ore to be alloted to state based industries via long-term linkage.

Under the long-term linkage policy, 70 per cent of the iron ore mined by OMC is offered to end use industries. OMC closed 2017-18 with an iron ore output of eight million tonnes. The public sector miner is hopeful of inching closer to its installed capacity of 11 million tonnes, through ramp up of its flagship Gandhamardhan operations.

Bamnipal Steel Limited (BNPL), a wholly-owned subsidiary of Tata Steel has successfully completed the acquisition of controlling stake of 72.65 per cent in Bhushan Steel Ltd (BSL) in accordance with the approved Resolution Plan under the Corporate Insolvency Resolution Process (CIRP) of the Insolvency and Bankruptcy Code (IBC), 2016.

“The investment from BNPL in BSL has been done through a combination of equity of Rs 1.58 billion and inter-corporate loan of Rs 3.49 billion. The acquisition is being financed through a combination of external bridge loan of Rs 165 billion availed by BNPL and balance amount through investment by Tata Steel in BNPL. The bridge loan availed by BNPL is expected to be replaced by debt raised at BSL over time”, Tata Steel had announced in a previous statement.

The acquisition of Bhushan Steel is expected to reinforce Tata Steel's position in the automotive steel segment. BSL has been a long-term supplier to auto OEMs (original equipment manufacturers) like Maruti Suzuki, Tata Motors and Honda Cars. Also, BSL's location within 150 km of the Kalinganagar plant is expected to generate synergy benefits and help consolidate Tata Steel's position in the east.