Corporate moves becoming more and more complex are the reason for coinage of new words to describe phenomena not known earlier. So we now have ‘de-diversifying,’ a word aptly added to business lexicon by a HSBC analyst, to explain Brazilian miner Vale SA’s step back, albeit largely, from aluminium business.
Grammarians will no doubt laugh a word like ‘de-diversifying’ out of court. But HSBC analyst might ask how else to describe a scene where a company which before the world got engulfed in a cruel economic downturn would be an eager bidder for many kind of mineral assets would rid itself of a business constituting the third largest revenue generator after iron ore and coal.
Whether inspired by the diversified portfolio of the other two mining behemoth or not, Vale bought the Canadian nickel miner Inco in 2006 which proved to be highly rewarding till the beginning of a crippling strike ten months ago. The failed attempt to acquire Switzerland-based Xstrata with a diversified minerals and metals portfolio in 2008 was in pursuit of an ill thought out ambition. But sale of underperforming aluminium business shows Vale’s present disenchantment with presence in too many areas. No doubt Rio Tinto would also have done better had it not bought Alcan at the top of the market.
Hydro, which has struck a $4.9-billion deal with Vale to acquire its bauxite mines and alumina and aluminium assets, is well known here first for its becoming a principal promoter of the 1 million tonne capacity Utkal Alumina in 1993 and then quitting the venture in the face of persistent protests by local villagers and NGOs. UA has found its reincarnation in Aditya Alumina. Hydro now has a modest presence here as supplier of what is claimed to be “energy efficient and cost effective” aluminium building systems. Once forced by circumstances to make a retreat from bauxite mining and alumina venture does not mean that Hydro will not seek a big presence here in future.
Prior to its merger with Rio Tinto, Alcan, which earlier acquired Aluminium Pechiney made attempts to return to India. Even while Alcan sold Indian Aluminium and also transferred its one-third ownership of UA to Hindalco, it wanted to start anew here. But now Rio Tinto has made known its intention to revive an iron project in Orissa mothballed over a decade ago. But don’t expect much to happen till we have put in place a system which will see investors through the maze of bureaucracy, multiple forest and environment clearances and land acquisition knots within a reasonable time.
Whether it is Hydro or any other aluminium producer, India with the world’s fifth largest bauxite deposit of over 3 billion tonnes, mostly high grade, has got to be in its reckoning. State-owned Dubai Aluminium in an alliance with Larsen & Toubro is to build in Orissa a 1.4 million tonnes alumina refinery in the first phase to be doubled thereafter when a smelter is also to be set up. But the project like many others is suffering repeated delays due to bureaucratic slothfulness and public protests. All this no doubt is a big put off for foreign investors. Even then we have seen world aluminium leaders such as Rusal and Chinalco scouting for opportunities here.
A mines ministry official says there is a “lesson for us” in the transaction between Hydro and Vale. Hydro’s strategic move is driven by a desire to “secure new resources for the next 100 years.” On completion of its second phase expansion, our Nalco is having alumina capacity of 2.1 million tonnes. Nalco’s refinery is fairly large sized. But the access that Hydro has now got to Alunorte in Brazil will lift its alumina kitty by 6 million tonnes.
As part of the deal, Hydro is also getting control of the world’s third largest bauxite mine Paragominas and CAP alumina project with potential to become bigger than Alunorte. More than the smelter assets, what principally moved Hydro in the arrangement are Vale’s bauxite deposits and alumina refineries. In this, there is a message for Indian mineral-based industries. When getting new mines here is becoming increasingly difficult, Indian companies should buy mineral assets overseas. China is doing that with great resolve, particularly in Africa.
There is also a message for us in Vale very largely downsizing its presence in aluminium coinciding with its announcement of developing Simandou iron ore mine in Guinea at $2.5 billion investment. In the meantime, in step with the growing demand for iron ore, Vale raised March ended first quarter production of the mineral by 43 per cent year-on-year to 69.1 million tonnes. Not only has Vale restarted operations idled during an economic meltdown, but it is also to lift an extra 20 million tonnes of ore from the massive Carajas mine. The Vale story as it has unfolded is one of virtues of focussing on core strength.
