Metal, Mining Cos Eye Global Scale - Quoted in the Economic Times

Two recent developments — the merger of Sesa Goa & Sterlite and Tata Steel’s plans to get into merchant mining — signify that Indian metals & mining companies are aiming to acquire a global scale. The Indian firms, however, have a long way to go before they could rival the likes of BHP Billiton of Australia or Vale of Brazil.

Tata Steel said recently it may look at merchant mining at New Millennium Iron’s Taconite Project in Canada coming up at a $4.4-billion capital cost. With over 100 years of experience in mining iron ore, coal and chromite, Tata Steel produces 14 million tonnes of ore from its captive collieries, iron ore mines and quarries spread over Jharkhand and Orissa. Similarly, post announcement of Sesa-Sterlite merger, chairman of Vedanta Resources Anil Agarwal has said the decision stems from a vision to create a mining major to compete with the likes of Vale and BHP.

In the public sector too NMDC, SAIL and NALCO have been eyeing mining and metals operations across the world. The move stems as much from a need to secure global mining assets as to achieve economies of scale in mining operations to serve their captive needs. However, these moves have failed to impress metals sector watchers and analysts who feel, in scale and size Indian companies have a long way to go before they can even dare to rival the likes of global mining biggies.

Dipesh Dipu, director, Deloitte India, who is a mining consultant, said: “The move is linked to raw material security. Thus domestic metal companies with downstream interests are now acquiring mines. The mining value chain captures a larger value as commodity process go up. It has more to do with profitability rather than scalability.”

“Also, mining is more global now than ever before. Due to problems in mining in India, companies are being forced out to resource-rich areas like Canada, Australia or Africa which have welcomed Indian investment in mines,” Dipu added. “Also, mineral assets give companies better control on input costs, and hence, certainty in pricing,” he added. Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities, feels Indian companies are nowhere near global majors like BHP Billiton or Rio Tinto in terms of scale and size, despite recent attempts to acquire mines abroad.