MUMBAI: JSW SteelBSE -1.25 %, owned by billionaire Sajjan Jindal, is in talks to purchase a significant stake in Sandur Manganese and Iron Ores in Karnataka to improve its access to iron ore and cut logistics costs, two people with direct knowledge of the development said.
"JSW is in talks to buy a significant stake of the promoter in Sandur Manganese at a considerable premium to its current market price," said an investment banker with direct knowledge of the deal. He declined to provide further details as the deal is yet to be closed. The promoters, who own 74.15% stake in the company, have appointed investment banker Edelweiss Financial Services to scout for a buyer.
JSW, India's largest domestic steelmaker by capacity, currently sources iron ore from India's largest iron ore miner, the state-owned National Mineral Development Corporation, through e-auction. The iron ore comes from NMDC's mines in Odisha and Chhattisgarh. The proposed transaction is intended to ensure assured supply from the Sandur mines located 30 km from its 12 million tonne Vijayanagar plant in Karnataka. The company is already buying a part of its iron ore requirement from Sandur.
"We are open to selling stake in the listed company to a partner if they are interested in buying surplus iron ore for which an equity holding is essential, '' Nazim Sheikh, joint managing director, Sandur Manganese and Iron Ores said.
''We are in talks with five strategic investors including JSW to build an alloy steel plant with an investment of anywhere between 900 crore and 1,000 crore which is partly financed by equity and debt.'' Sandur will continue to own majority stake in the new joint venture, he added. The iron ore supply to JSW's Vijaynagar plant, which used to be sourced primarily from its Karnataka mines, jointly owned by the Karnataka government, was hit after theSupreme Court ordered all mines in the state to sell iron ore through e-auction.
"'The company (Sandur) has been talking about divestment for sometime. JSW is keen to acquire iron ore mines,'' a person with direct knowledge of the company said. "'We do not comment of market rumours and speculations,'' a JSW spokesperson said. On Monday, Sandur Manganese shares rose 1.86% to close at 502 on the Bombay Stock Exchange.
" A deal will help JSW cut logistic costs as it pays around 2,000 more for every tonne of iron ore they purchase from Chhattisgarh or Odisha,'' Ashish Kejriwal, metal and mining analyst at brokerage Elara Capital,said. ''But (right now)it has to buy iron ore at market price through e-auction, denying the company the price advantage of being an owner of the mines.''
''The company is hoping that the apex court may relax its stringent order of selling iron ore through e-auctions for captive mine owners in future which will help the company to source iron ore much cheaper,'' Kejriwal added.