A consolidation in the iron ore sector may move to cartelisation which would hurt consumers’ sentiment and the government is averse to it, said Ashwani Kumar, Union Minister of State for Industry in his inaugural address at the two-day mining seminar 'Global Metals & Mining: Mergers & Acquisition Perspectives' here on Monday.
Globally, iron ore mining business is understood to be run by family imperialism. Therefore, a handful of firms control mining sector which may be harmful for the allied industries too, said Kumar.
Global economic slowdown has hit India’s iron ore mining sector hard with a number of small mining companies have shut down their shops. A lot of other units have reduced their production capacity phenomenally during the last 2-3 months. Hence, the fear looms large that the mining sector especially iron ore mines may move towards consolidation where small and medium size unviable mines may sell their assets to big ones.
In these circumstances, mergers and acquisitions become a critical art for negotiation especially when the valuations of the units have halved on global perspective. Also adds the quality of bargain with the coercive and effective negotiations, the minister added.
He hinted the mining business is risky but lucrative business where mergers and acquisitions may benefit some players. But, it would lead to cartelisation through control of goods by a few companies. This is very dangerous, he feared.
This does not mean that the existing mining players in the industry will not get allocations of mining reserves next time. Small companies will continue to grow big, and big to bigger. All they would require fresh allocations of mining leases. The minister clarified that the government does not oppose their growth but it does not support companies to raise prices artificially either.
Kumar also suggested iron ore mining companies to infuse funds, they earned in the last four years of boom time, into the market so that the liquidity would ease a bit. He hoped that the global initiatives would ease the liquidity crunch soon.
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