Tatas pick 35 per cent in Mozambique Coal Project
Business Standard — August 4, 2007

Tata Steel has entered into a memorandum of understanding (MoU) with Australian mining finance house, Riversdale Mining, to acquire a 35-per cent stake in its Mozambique Coal Project for A$100 million (Rs347 crore).

According to the MoU, the two companies would develop the project jointly. Riversdale is currently conducting a study, which is likely to be completed in August 2007. The definitive agreements are expected to be finalised and executed by November 30, 2007.

The hard coking coal derived from the project would be supplied to the Corus facilities in the UK and Europe and used for the company's enhanced requirement in India.

The move towards raw material security is part of Tata Steel's long-term strategy and the company has formed a global minerals group, which is actively exploring various opportunities to secure access to iron ore and coal in various geographies. This would enable the company to continue its competitive cost position in the global steel industry.

According to analysts, Tata Steel's standalone security, which implied percentage of steel made through captive iron ore and coal, was at 80 per cent, which reduced to 17 per cent for the combined Tata-Corus entity.

However, in 3-5 years, this is expected to reach 40 per cent with Jamshedpur brownfield and Orissa coming on-stream. The company proposes to improve security to 60-80 per cent in phases.

Tata Steel hopes to have an annual capacity of 56 million tonnes by 2015, which includes Corus and proposed greenfield projects in Orissa, Chhattisgarh and Jharkhand. The Tata Steel stock today surged two per cent and closed at Rs651.70 on the Bombay Stock Exchange.

B Muthuraman, managing director, Tata Steel, said the MoU with Riversdale was in line with Tata Steel's stated strategy of progress towards raw material security for its global business.

"This partnership gives Tata Steel an opportunity to jointly explore part of a large coal basin which would prove to be a potential source to meet part of the raw material requirement and enhance the long-term competitiveness of the global operations," he said.

The completion of the transactions agreed to in the MoU was subject to completion of due diligence, definitive agreements and board approvals of both companies.

The Mozambique Coal Project includes tenements of premium hard coking coal in Benga and Tete together, covering 24,960 hectares. The Riversdale management expects that the potential mineralisation of the area would be substantially high. Tata Steel already has a five per cent interest in the Carborough Downs Coal Project located in Queensland, Australia. The project is majority owned and operated by a subsidiary of AMCI Holdings Australia Pty Ltd.

Tata Steel's move is seen as part of a growing trend to secure access to coal and iron ore. JSW Steel has also acquired licences for exploring coal mines in Mozambique.