Tata Steel Mining’s 141.25% premium offer for over 300 million tonnes (mn t) of greenfield deposit of Gandhalpada, a departure from its thus far conservative bids, has raised a few eyebrows.
India’s third largest steelmaker in terms of capacity has always had the advantage of captive raw material supplies from its iron ore mines in Joda and Noamundi, to which it has rights till 2030 with a first right of refusal when they are auctioned. With no immediate need for iron ore, Tata Steel had watched from the side-lines while peers such as JSW and AM/NS volunteered steep premiums in early 2020.
Given the experience of the last one year, and the new lessees’ struggles to meet obligations, the industry and the government alike expected far more reasonable bids. After all, a 141.25% premium translates into Tata Steel paying the government all of its sale value (as per IBM’s declared average prices), royalty and other taxes extra when and if it begins mining this deposit.
Gandhalpada provides a strategic advantage, said sources speaking to SteelMint on condition of anonymity. It is adjacent to the 92 mnt Kalmong West iron ore deposit, which Tata Steel inherited with the acquisition of Bhushan Steel but is yet to take control of.
The block was won by the Singhal’s controlled-Bhushan Steel but for a steep 100.05% premium in 2017, a year after MMDR was amended to mandate auction of mineral rights. It was tendered along with the 81.97 mn t Netrabandha Pahar and the 99.59 mt Ghoraburhani Sagasahi iron ore block won respectively by the soon to be bankrupt Bhushan Power and Steel Ltd (for 87.15%) and Essar Steel (for 44.35%).
Tata Steel had been reluctant to proceed with a 100% premium particularly when it had ample supply of captive ore. It has time only until June 2022 to secure clearances (whose applications are at preliminary stage) if it wants to secure its rights to Kalmong West.
Unlike Tata Steel, AM/NS wasted no time after its acquisition of Essar Steel. Its earnest chase — including getting the Centre to clarifying that “a mine continues to be a mine till it is no longer feasible to produce minerals from that mine and may have different owners from time to time” – has allowed it to begin mining of Sagasahi, which incidentally is also close to Gandhalpada.
Tata Steel announced a capex plan over the next five years. It is ramping up steel capacities from Kalinganagar to 8 mn t pa and thus Tata Steel plans to secure iron ore supplies.
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