Essar group raises $450 million to expand Minnesota mine project

By ET Bureau | 15 Oct, 2014
MUMBAI: The Essar Group owned by the billionaire Ruia brothers have achieved financial closure for the $1.8 billion Minnesota Mining project making some headway six years after the asset was acquired. The group has raised $450 million from a clutch of New York based funds to fund the expansion of the mine.

Essar Steel Minnesota had raised $450 million from banks, but returned the funds after securing what it called was a better deal from funds based in New York, Madhu Vuppuluri, president and CEO of Essar Minnesota in an interaction with ETsaid.

The Essar Group, the promoters of the $1.8 billion project have committed $750 million as equity. About $700 million debt has been raised from Indian banks. The American hedge funds are investing $450 million in high yield bonds for six years which can be repaid before maturity.

The group had been in talks with Russian and Chinese banks for funds. "We looked at several options," he admitted. But we finally chose what suited us, he added. According to Vuppuluri, the banks prefer to have some comfort in ascertaining cash flows before lending. For a green-field project this was difficult. The agreement with banks, therefore necessitated a non-call feature that ensured for the lenders a high-yield bond for atleast six years. This would have been expensive for the company as ..

Vuppuluri reasons this as the sole reason for the company to prefer (hedge) funds as they are willing to be repaid once the mine starts commercial production and cash flows come in.

Vuppuluri said the company will be one of the "lowest cost producer" of pellets in the world. Essar Minnesota will only have two customers. It will supply about 4 million tonne taconite pellets to Arcelor Mittal and about 3 mt to Algoma, an Essar group company based in Canada.

The operating cost for the Minnesota based pellet maker would be about $40 dollars. Any upside in iron ore prices can be captured in subsequent terms, he added.

Vuppuluri is credited to playing a pivotal role in acquiring assets in North America for the Essar group. The acquisitions include Algoma, a steel maker in Canada and Minnesota Mining, a promising iron ore mining asset and Aegis, the BPO company which the group eventually exited profitably when it sold AGC Holdings Limited to Teleperformance for $610 million in July, this year.

Vuppuluri however rejects the poser that the asset was not cheap. The asset was identified carefully and we acquired it at an appropriate price, he argues.

**