25 JUL, 2012, ET BUREAU
MUMBAI: The Aditya Birla Group could soon be supplying iron ore to the Tata group's European steel mills if their latest bid to acquire an Australian company with mining assets in Norway gains fruition.
The Kumar Mangalam Birla-led Aditya Birla Group has sweetened an offer to acquire Perth-based Northern Iron, which recently signed a long-term supply agreement with Tata Steel Europe. The Birlas' revised bid for the mining firm translates to A$518 million, or about Rs 2,983 crore.
The Indian Group's initial bid in May, between A$ 1.23 - A$ 1.29 per share, was rejected by the Northern Iron board, saying that the offer did not reflect the value of the company. On July 23, the Aditya Birla group raised the offer price by about 8.5% to A$1.40 for every share of Northern Iron.
The latest offer is at a 75% premium to the Monday's closing price of Northern Iron. Its shares gained 38% to A$1.105 in early trade on Tuesday after the miner confirmed the renewed bid by the Aditya Birla Group.
"The Aditya Birla Group submitted a revised indicative, non-binding stage one proposal. The board will consider the revised proposal and whether to facilitate detailed stage two due diligence and expects to announce its decision within a week," Northern Iron said in a filing with the Australian Stock Exchange.
The bid would likely be driven by the Aditya Birla Group's unlisted mining subsidiary, Essel Mining. A group spokesperson did not comment on the issue.
Northern Iron last year reported a net profit of $2.9 million. The company's Sydvaranger iron ore mine in northern Norway has a nameplate capacity to mine 2.8 million tonnes of ore annually with existing reserves with a mine life of 25 years. In May this year, Northern Iron agreed to supply an additional 275,000 tonnes of ore concentrate to Tata Steel Europe, raising the total supply to 1.8 million tonnes annually.
"It's a risky proposition," says Abhisar Jain, an analyst with Centrum Broking. "Steel making in Europe is slowing down. The market there is affected by overcapacity and a number of steel mills, including Tata Steel Europe, have announced capacity cuts."
Steel mills in Europe and North America are grappling with rising costs, shrinking margins and weak demand, with many large companies exploring options of slashing capacities or disposing assets. Recently, Germany's ThyssenKrupp, one of the world's top five steelmakers, said it is planning to sell its assets in the Americas.
The World Steel Association recently said world crude steel production in June was flat at 766.9 million tonnes, as volumes remained slow across Europe.
According to a senior executive in a mining company, the demand for iron ore also seems to be weakening due to a slowdown in China. "China was the largest consumer till last year. But falling steel production and the government's plan to ramp up local ore production has seen a drastic fall in iron ore imports into China," said the executive who asked not to be named as his company competes with Essel Mining.
Northern Iron is currently producing around 2.1 million tonnes a year, but aims to reach its 2.8 million tonnes capacity soon. It plans to spend $360 million to double its concentrate production to 5.6 million tonnes by 2016.
The Aditya Birla group has been on an acquisitive mode off late. In 2012, the group made headlines by acquiring significant stakes in three diverse businesses. In April, it acquired a majority stake in Kishore Biyani's Pantaloon Retail chain for Rs 1,500 crore.
In May, the group acquired a 27.5% stake in Living Media for an undisclosed sum and in July it acquired Terrace Bay Pulp Mill, a Canadian firm for $44 million. The group was fairly active in 2011too as it had made three big ticket acquisitions - Columbian Chemicals, a carbon black maker for $875 million, 33% in Domsjo Fabriker for $ 340 million and Chloro Chemicals business of Kanoria Chemical for 830 crore.
MUMBAI: The Aditya Birla Group could soon be supplying iron ore to the Tata group's European steel mills if their latest bid to acquire an Australian company with mining assets in Norway gains fruition.
The Kumar Mangalam Birla-led Aditya Birla Group has sweetened an offer to acquire Perth-based Northern Iron, which recently signed a long-term supply agreement with Tata Steel Europe. The Birlas' revised bid for the mining firm translates to A$518 million, or about Rs 2,983 crore.
The Indian Group's initial bid in May, between A$ 1.23 - A$ 1.29 per share, was rejected by the Northern Iron board, saying that the offer did not reflect the value of the company. On July 23, the Aditya Birla group raised the offer price by about 8.5% to A$1.40 for every share of Northern Iron.
The latest offer is at a 75% premium to the Monday's closing price of Northern Iron. Its shares gained 38% to A$1.105 in early trade on Tuesday after the miner confirmed the renewed bid by the Aditya Birla Group.
"The Aditya Birla Group submitted a revised indicative, non-binding stage one proposal. The board will consider the revised proposal and whether to facilitate detailed stage two due diligence and expects to announce its decision within a week," Northern Iron said in a filing with the Australian Stock Exchange.
The bid would likely be driven by the Aditya Birla Group's unlisted mining subsidiary, Essel Mining. A group spokesperson did not comment on the issue.
Northern Iron last year reported a net profit of $2.9 million. The company's Sydvaranger iron ore mine in northern Norway has a nameplate capacity to mine 2.8 million tonnes of ore annually with existing reserves with a mine life of 25 years. In May this year, Northern Iron agreed to supply an additional 275,000 tonnes of ore concentrate to Tata Steel Europe, raising the total supply to 1.8 million tonnes annually.
"It's a risky proposition," says Abhisar Jain, an analyst with Centrum Broking. "Steel making in Europe is slowing down. The market there is affected by overcapacity and a number of steel mills, including Tata Steel Europe, have announced capacity cuts."
Steel mills in Europe and North America are grappling with rising costs, shrinking margins and weak demand, with many large companies exploring options of slashing capacities or disposing assets. Recently, Germany's ThyssenKrupp, one of the world's top five steelmakers, said it is planning to sell its assets in the Americas.
The World Steel Association recently said world crude steel production in June was flat at 766.9 million tonnes, as volumes remained slow across Europe.
According to a senior executive in a mining company, the demand for iron ore also seems to be weakening due to a slowdown in China. "China was the largest consumer till last year. But falling steel production and the government's plan to ramp up local ore production has seen a drastic fall in iron ore imports into China," said the executive who asked not to be named as his company competes with Essel Mining.
Northern Iron is currently producing around 2.1 million tonnes a year, but aims to reach its 2.8 million tonnes capacity soon. It plans to spend $360 million to double its concentrate production to 5.6 million tonnes by 2016.
The Aditya Birla group has been on an acquisitive mode off late. In 2012, the group made headlines by acquiring significant stakes in three diverse businesses. In April, it acquired a majority stake in Kishore Biyani's Pantaloon Retail chain for Rs 1,500 crore.
In May, the group acquired a 27.5% stake in Living Media for an undisclosed sum and in July it acquired Terrace Bay Pulp Mill, a Canadian firm for $44 million. The group was fairly active in 2011too as it had made three big ticket acquisitions - Columbian Chemicals, a carbon black maker for $875 million, 33% in Domsjo Fabriker for $ 340 million and Chloro Chemicals business of Kanoria Chemical for 830 crore.
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