Companies

Tata Steel cashes in Riversdale Mining chips

18tata.eps

Tata Steel's cash position of Rs 14,000 crore as of March 2011 got a boost of around Rs 5,000 crore from the sale of 26 per cent stake in Riversdale Mining to global mining major Rio Tinto. The company has realised double of its initial investment in just four years. Consequently, Rio Tinto holds 100 per cent of Riversdale Mining.

The decision to cash out of Riversdale Energy could be a result of Rio Tinto's reluctance to sign up with Tata Steel for an off-take agreement in the larger Zambeze project similar to the one which Tata Steel has in the Benga project. This could restrict Tata Steel's ability to tap into the reserves, given that coking coal resources are increasingly difficult to come by.

Tata Steel holds a 35 per cent stake in the Riversdale Energy company. Riversdale Energy holds 65 per cent. This project is the holding company for the Benga coal mines based in Mozambique. The 35 per cent provides Tata Steel a hedge against shortage and secures off-take for coking and thermal grade coal for its European operations. Both are much needed and expensive inputs for steel-making.

CASH IS KING

The Riversdale stake sale of Rs 5,000 crore coupled with the Rs 1,130 crore realised from selling 51 per cent of its refractory arm is estimated to have upped Tata Steel's cash reserves to over Rs 20,000 crore. While the company has not declared how it intends to use the cash, there is no shortage of options.

One is to repay part of the company's gross consolidated debt which stood at Rs 61,000 crore at the end of March 2011. Doing so could lower its gearing and better prepare it for its continuing expansion in Orissa. The delayed 3 million-tonnes-annually Orissa steel project is expected to cost the company over Rs 24,000 crore over the next two years. In the current rising-interest-rate environment, using internal resources instead of debt to fund the project would be a cheaper option.

Published on June 17, 2011

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