Breakingviews – Indian interlopers can disrupt global mining M&A – Reuters

JSW Steel Chairman Sajjan Jindal speaks during a news conference in Ahmedabad, India, July 1, 2015. REUTERS/Amit Dave Acquire Licensing Rights

BENGALURU, Aug 25 (Reuters Breakingviews) – An Indian tycoon has a powerful motive to throw himself into some global mining M&A. Sajjan Jindal is looking to pull together a consortium to take a 75% stake in the coal unit of Canadian miner Teck Resources (TECKb.TO), according to Bloomberg. Such a move would pit his $23 billion Mumbai-listed JSW Steel (JSTL.NS) against a rival $8 billion bid by Swiss commodities giant Glencore (GLEN.L). As geopolitics heats up and the global energy transition gathers pace, industrialists sitting in the world’s fastest growing market for the alloy are anxious to secure supplies.

India will need a lot of steel. Per capita consumption of the finished metal is only 81 kilograms, less than half the world average in 2022. The government aims to nearly double annual domestic production capacity to 300 million tons by 2030, and Jindal at the helm of the country’s largest steelmaker by market capitalisation wants to grab a bigger piece of the industry.

That points towards JSW and other domestic champions including Tata Steel (TISC.NS) and state-owned Steel Authority of India (SAIL.NS) setting up large plants that will need a lot of coal, much of which will need to be imported. Some 95% of metallurgical coal that India digs up contains a very high ash content making it less desirable and as much as 70% of India’s coking coal imports come from Australia, leaving the South Asian nation highly dependent on one country for a critical raw material.

Acquiring coal mines is one way for steelmakers to reduce their exposure to potential supply shocks. High input costs following Russia’s invasion of Ukraine led to a halving of JSW’s EBITDA margin in the year to the end of March 2023. Volatility is a problem because of geopolitics. The problem may persist too as countries rush to lower emissions and adopt cleaner fuels, raising the prospects of further mismatches of demand and supply. In North America, JSW already has steel plants in Ohio and Texas, and coal mining facilities in West Virginia.

Jindal could dig deep to bid outright for the Teck unit. An $8 billion purchase entirely financed by borrowings would lower the enlarged JSW’s ratio of net debt, and keep it below a stated limit of 3.75 times EBITDA. Yet, like other tycoons scarred by the country’s recent bad debt crisis, he is wary of leverage. The deal would also amount to more than India has spent on outbound M&A in any year since 2018, per Dealogic. Anchoring a consortium bid makes sense but if push comes to shove, Indian tycoons can afford to be aggressive interlopers.

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India’s JSW Steel is looking to form a consortium to bid for a majority stake in Teck Resources’ steelmaking coal business, potentially rivalling an $8 billion offer from commodities giant Glencore, Bloomberg reported on Aug. 17 citing people with knowledge of the matter.

JSW is seeking partners for an offer to acquire a 75% interest in the asset known as Elk Valley Resources, Bloomberg added.

Elk Valley Resources produced 25.7 million tons of steelmaking coal in 2019, according to a report produced using Deloitte estimates for the BC Chamber of Commerce.

Editing by Una Galani and Thomas Shum

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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