Jindal Steel picking 9% in Gujarat NRE Coke’s Australian arm for $25M

Gujarat NRE Coke Ltd has struck a deal with Jindal Steel & Power Ltd to raise $25 million (Rs 138 crore) by selling 9 per cent stake in its Australian arm Gujarat NRE Coking Coal Ltd.

Gujarat NRE Coking Coal, which is listed on the Australian Securities Exchange, will issue 100 million shares at a price of $0.25 per unit, a premium of 48 per cent to the last traded market price of $0.17 on May 25, 2012. The placement is expected to be completed by May 30.

Gujarat NRE Coking Coal scrip shot up 5.88 per cent to close at $0.18 a share after the deal was announced on Monday. The parent company, Gujarat NRE Coke, rose 3.23 per cent to close at Rs 17.6 a share on the BSE in a strong Mumbai market.

Gujarat NRE Coke owns around 69 per cent in the Australian firm, which would shrink to 63.2 per cent post-issue to JSPL. The deal also involves an off-take agreement over 10 years for a total of 5 million tonnes, based on an annual off-take of 0.5 million tonnes at benchmark-linked price.

“This is a win-win deal for both parties, since it provides secure supply of premium hard coking coal to Jindal Steel while it diversifies the customer base of the company,” said Arun Kumar Jagatramka, executive chairman of Gujarat NRE Coking Coal.

The Australian arm owns and operates two hard coking coal mines in the southern coal fields of New South Wales in Australia. These mines – NRE No 1 Colliery and NRE Wongawilli Colliery – contain estimated coal reserves of 125 million tonnes and resources of 651 million tonnes.

Bulk of the coal production is sold to its parent company Gujarat NRE Coke at market price. The parent firm is one of the largest independent manufacturers of metallurgical coke in India.

This is the second deal for JSPL in Australia in May this year. Three weeks ago, the company entered into a definitive agreement to acquire 9.25 per cent stake in Australia-based Apollo Minerals Ltd for $1 million.

For JSPL, the deal comes at a time when it is facing uncertainty over its $2.1 billion iron ore mining project in Bolivia. The steel company, which had forayed into power generation a few years ago, had struck a major victory in securing natural resources for its businesses six years ago as it won the bid to develop the El Mutun mines in Bolivia.

The final approval from the local government to start the project was delayed for years due to various issues including gas supply. Given the recent statement by the Bolivian government, the project is as good as scrapped and the Latin American country is keen on seeking new investors.

Two years ago, JSPL has also announced a large deal to acquire Dubai-based Shadeed Iron & Steel Co for $464 million (including the assumption of liabilities of up to $79 million) from Al Ghaith Holding PJSC.

JSPL had also picked a minority stake in another Australian firm Rocklands Richfield Ltd and raised its holding by acquiring additional 12.83 per cent stake for $14.4 million, taking its holding to 27.29 per cent in the target company.

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