MUMBAI (Business Day) -- Indian conglomerate Tata has joined the race to buy Highveld Steel & Vanadium [Nasdaq:HSVLY] from Anglo American [Nasdaq:AAUK], raising the possibility of a bidding war with Mittal Steel [NYSE:MT], which has also expressed interest.
Tata group chairman Ratan Tata told journalists yesterday that the Indian group, which is looking to expand steel production from about 7-million tonnes to 30-million tonnes in 10 years, was in talks with Anglo American over the stake.
Anglo American, which owns a 79% stake in Highveld, has already put a “for sale” sign on it and other noncore assets.
Anglo said recently it had reviewed the group’s investment in Highveld, which also accounts for a quarter of the world’s vanadium production, and had decided to dispose of it.
Mittal Steel, which will have about R5 billion ($764.6 million) cash on its balance sheet at year-end, has been seeking consolidation in the domestic market, and is also regarded as a potential buyer.
Tata said the main challenge facing his group’s plan was separating Highveld’s steel business from its vanadium business, in which he was not interested.
Local analysts say a price for Highveld could range from R6 billion to R10 billion. They said while the steel and vanadium operations were probably inseparable, they could be split on paper through arrangements such as an offtake agreement for vanadium.
The analysts have also said the Mittal group wanted both the steel and vanadium operations, which were integrated, in line with its strategy of reducing dependence on external raw material supply sources.
Tata, which claims to be the world’s lowest-cost steel producer, is in a globalisation drive and views South Africa (SA) as a “major growth market” for some of the seven sectors in which Tata operates.
The Indian conglomerate has secured a stake in SA’s second fixed-line telecoms network operator, has approved plans to build a R600 million ferrochrome plant at Richards Bay, and is bidding to build a power generation plant in SA. Its hotels chain is also looking at expanding aggressively in SA.
Head of the group’s information technology subsidiary Tata Consulting Services also told journalists yesterday that the company was looking to grow its business in SA 200%-300% a year, from a base of about R100 million a year in revenue at the moment.
Tata Steel MD B Muthuraman said that Tata representatives visited the Highveld plant on Monday. He said high vanadium prices had bolstered Highveld’s share price and that this could render Highveld unattractive.
Highveld was attractive because it mined its own ore, used electricity rather than costly coking coal to process the ore and had the lucrative vanadium component.
It has said revenue from vanadium would underpin its 2005 earnings. Vanadium, a white, soft metal, is used in x-rays and the manufacture of alloys. Demand for it has jumped to record levels, while global supply is constrained.
At the close of business yesterday Highveld’s share price hardly moved, falling 0.13% to R84.55.
The share price has risen 32% since Anglo American announced that it was disposing of noncore assets, including Highveld. But Tata said it would continue talking to Anglo American despite this.
Muthuraman said that South African steel prices were among the highest in the world.
Tata said it aimed at making “reasonable profits” holding hope for SA steel users, who have lamented that high steel prices were hampering the development of the downstream industry.
Tata bucked the world steel price trend in August last year when it cut steel prices, which were approaching record highs.
The group said its steel prices had remained at that level for the past year.
Tata Steel is one of the largest subsidiaries within the Tata group, generating about $4.4 billion of the group’s $17.8 billion in the year to March.
The steel company is expanding its original steel plant in Jamshedpur, India, and is looking to build greenfields steel plants in Bangladesh and Iran.
It is also investing in upstream feeds such as iron-ore and coal mines.
