Sesa Goa buys Dempo assets for Rs 1,750 cr

Co Acquires All Outstanding Common Shares Of VS Dempo & Co In All-Cash Deal

SESA Goa, the country's largest private iron ore exporter, has acquired Goa-based Dempo Group's mining assets for Rs 1,750 crore in an allcash deal, in a move intended to increase its pricing power and strengthen its position in the industry.
A part of the London-listed Vedanta Resources, Sesa Goa on Thursday said it has signed a definitive agreement to buy all outstanding common shares of the unlisted VS Dempo & Co (VSD), which owns 100% of the equity shares of Dempo Mining and a 50% stake in Goa Maritime. The deal includes VSD's net working capital of Rs 145 crore.
The acquisition is taking place when major iron ore miners are set to command more pricing power in the wake of a fresh round of consolidation in the global iron ore industry. The world's two major iron ore producers, Rio Tinto and BHP Billiton are merging their Australian assets to form a firm with an annual extraction capacity of 250 million tonne. This consolidation of supply will strengthen the pricing power of miners, said city-based brokerage Motilal Oswal in a recent report. "Any 10% increase in iron ore prices will hike Sesa Goa's EPS for FY10 by 25%," the report added.
    Vedanta Resources chairman Anil Agarwal said in a late evening media statement that the integration of Sesa Goa and VSD will achieve great synergy. A Vedanta official, who did not wish to be named, said the acquisition will enhance operational and cost efficiency of Sesa Goa as VSD's mines are adjacent to its assets in India's smallest state. Sesa Goa has iron ore mines in Karnataka, Orissa and Goa. Also, the official said, VSD is a well-known exporter of iron ore in China where Sesa Goa has a significant presence. Sesa Goa also exports to Japan.
    Shrinivas V Dempo, chairman and managing director of the Dempo Group, said the agreement will ensure long-term sustenance of VSD's operations. Ambit Corporate Finance and J Sagar & Co acted as financial and legal advisors to VSD while Luthra & Luthra advised Sesa Goa on the transaction.
    The acquisition of the unlisted company will add 70 million tonne of reserves to Sesa Goa's 240 million tonne. VSD's Goa mining assets include processing plants, barges, jetties, transhippers and loading capacity at Mormugoa port. No threat to MMDC's top slot
EVEN after the acquisition of VSD, Sesa Goa will remain way behind government-owned iron ore exporter MMDC, India's largest company in that sector. In FY09, it produced 3.94 million tonnes of iron ore and sold 4.36 million tonnes. Its revenues and EBITDA stood at Rs 976 crore and Rs 417 crore, respectively.
    Sesa Goa will fund the transaction from its internal resources pegged at around Rs 4,143 crore as on March 31, 2009. Prior to the announcement of the deal, the Sesa Goa stock gained 7% to close at Rs 192.10 on the BSE.
    Sesa Goa, which Vedanta acquired from Japan's second-largest trading company Mitsui two years ago, has posted a net profit of Rs 1,995 crore on net sales of Rs 4,959 crore in FY09. Domestic iron ore prices increased 10%, touching a four-month high in June on rising demand from China, even as Japan and South Korea witnessed a 33% fall in prices. Iron ore fines of over 63% iron content are traded at $55 a tonne in the domestic spot market, higher than last month's $50 a tonne.

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