Anil Agarwal's shopping spree continues. Even as the pursuit for Arizona-based copper firm Asarco is on, Agarwal has sealed a deal back home. Sesa Goa, a subsidiary of Agarwal's Vedanta Resources, is buying the Dempo group's oldest and most priced asset its mining business in Goa for Rs 1,750 crore in an all-cash deal. A few months ago, the Dempos separated the mining business and investment portfolio from the holding company, V S Dempo & Co (VSD), to make way for a new investor.
Though the earlier plan was to rope in financial investors, the Dempos changed their mind after Sesa Goa made an attractive offer, a source said. Interestingly, two years ago, Vedanta sprang a surprise by emerging as the highest bidder for Mitsui's 51% stake in Sesa Goa for $981 million, beating ArcelorMittal, the world's largest steel company, and Aditya Birla group. Sesa Goa marked Vedanta's entry into the iron ore segment.
Iron ore is a major raw material in producing steel, a key metal used to manufacture automobiles and refrigerators. Since ore deposits are found in only a few countries India's deposits are among the largest in the world the VSD acquisition consolidates Vedanta's position.
While the Dempos are exiting the iron ore business in Goa, they have decided to keep their mining interests in Maharashtra and Jharkhand. For Sesa Goa, India's largest private sector iron ore exporter, the deal brings in synergies between the two units. Sesa Goa is funding the acquisition from its existing cash resources, which stood at Rs 4,413 crore as on March 31, 2009.
"We are delighted at this opportunity to consolidate the iron ore business in Goa and integrate Sesa's & VSD's operations and achieve greater synergy," said Vedanta chairman Anil Agarwal.
Ambit Corporate Finance advised the Dempo group on the deal. Dempo chairman Shrinivas Dempo said, "We are pleased with this agreement with Sesa Goa which will ensure long term sustenance of VSD's operations."
Sesa Goa is now acquiring VSD, which owns and has the rights to mining reserves of about 70 million tonnes of iron ore for 17 years. VSD has 19 mines in Goa. In addition, Sesa Goa is acquiring VSD's related infrastructure like processing plants, barges, jetties, trans-shippers and loading capacity at Mormugoa Port, under Dempo Mining (100% subsidiary of VSD) and Goa Maritime (50% held by VSD).
VSD, which has been mining iron ore for 60 years, has revenues of Rs 976 crore with an EBITDA of Rs 417 crore in 2008-09. Sesa Goa reported a net profit of Rs 1,995 crore on revenues of Rs 5,183 crore in FY09. Of the 4mt of iron ore produced every year, VSD mainly exports to China, Japan and Hong Kong. Iron ore prices have been up in recent times to $55 due to rising demand from China.
The Dempos intend to utilise the proceeds from the sale of VSD in strengthening their other business interests spanning across calcined petroleum coke, ship-building, food and travel. The group's only listed entity, Goa Carbon, is the second largest calcined petroleum coke (CPC) in the country after Rain Calcining.
12 Jun 2009, TNN