Operational synergy, cost saving and some say in product pricing without inviting the glare of monopoly regulator are what inspire mergers and acquisitions (M&As). That for Sesa Goa, a Vedanta Resources group company, the acquisition of Dempo’s iron ore related and marine assets makes a nice strategic fit goes without saying.
Nowhere else, buyers of virgin mineral assets are put to as agonising an endurance test as is the case in India. If Lakshmi Mittal, who has made commitments to invest as much as Rs 100,000 crore to build two steel mills here, is found complaining about the frustrating delays in getting mining leases and environmental clearances, the fate of the rest is easily understandable.
It does not say much for the quality of administration of our mineral resources and environment management that though Sesa Goa got a prospecting licence for an iron ore deposit in Jharkhand in 2005, forest clearances are proving hard to come by.
SAIL Chairman Sushil Roongta had to use all the skills in his armoury to go about the maze of bureaucracy in order to retain the 2-billion-tonne Chiria deposits in Jharkhand and win mining rights on a 550 million tonnes (MT) of ore resource in Chhattisgarh to make Bhilai expansion viable.
In the circumstances, Sesa Goa could not have done better than find access to Dempo’s ore deposits of over 70 MT along with ore processing plants and adequate maritime backup. More than once in the past, Vedanta Chairman Anil Agarwal acquired dominant holdings in Indian companies, particularly Hindustan Zinc and Balco at attractive strike prices. After such acquisitions, these companies have grown considerably in stature. But when two years ago Agarwal led Vedanta to buy out the Japanese trading house Mitsui’s majority ownership of Sesa Goa, the group’s move into the ferrous space took the business world by surprise. Was there a signal in this acquisition of Vedanta foraying into steel? Yes, the group made some attempts in this direction, not with success so far.
Vedanta’s move into the Sesa Goa driver’s seat in 2007 did not leave anyone in doubt that the group will always be on the prowl to buy ore assets. At the same time, it will be making adequate investment to ramp up production at its mines in Goa, Karnataka and Orissa.
We are aware of Agarwal’s master plan to own one-million-tonne capacity each in aluminium, copper and zinc and he has firmed up investments to reach that goal. Has he not said once that his ambition was to make Vedanta one of the most globally admired mining and metals groups? “I want to make Vedanta the Indian equivalent of Brazilian Vale,” said Agarwal. So you can expect fireworks from Vedanta beyond the acquisition of Dempo assets. Even while plenty of acquisition opportunities remain in iron ore sector, we have not seen much of capacity consolidation. As we have the likes of NMDC, SAIL, Tata Steel and some private miners engaged in large-scale scientific mining of iron ore, every ore owning state is replete with examples of environment damaging and resource wasting bad mining practices.
What is particularly distressing is that about 250 iron ore mines of various sizes are closed either for management inefficiency or family disputes. Since there is little that the government can do to divest the owners of mining licences on grounds of mines not operating, private parties should not be found wanting in acquiring such assets. In some cases, however, acquisition cost may prove stiff. Sesa Goa has not said anything about cost savings to result from the assets of Dempo, all in Goa, coming under its wings. But there is no guessing that Sesa Goa will be saving considerable sums on ore transportation, machinery procurement and logistics management in the post-acquisition period.
R K Sharma, director general of Federation of Indian Mineral Industries, finds the buying of Dempo assets as a trail blazing development here. According to him, “Logistical challenges of mining in faraway centres and evacuation of mineral to either local consumption points or to the ports for exports in a cost-effective way can be met if mining is done on a large scale. It is because of this that M&A has become such a live issue among the leading mining groups globally.” Vedanta’s ambition is to make Sesa Goa a 50-MT producer of iron ore. P K Mukherjee, managing director, says Sesa Goa will lift production to 22.75 MT this year. That includes 4 MT of Dempo. Further progress in production for Sesa Goa has to come from more asset acquisitions.
