Tata Steel to focus on small mines overseas

Tata Steel Ltd, the world's sixth largest steel producer, has announced that it will begin production at its Sedibeng mine in South Africa from next year. The company has a large controlling interest in the mine, and its fabricated steel unit is already a mainstay of the economy in that backward district.

"A small iron ore mine at Sedibeng in South Africa will begin production next year. We would get two million tonnes per annum," Tata Steel managing director B Muthuraman told the media in Kolkata on Friday.

Tata Steel will be sharing the reserves of the deposit with other partners, whom the company didn't name. The ore it mines in South Africa will be exported to the manufacturing units of Corus, Tata Steel's subsidiary in Europe.

The company is currently focussing on South Africa and Canada and is also looking at coal blocks in Mozambique, Muthuraman said. The Sedibeng mine has a reserve of 50 million tonnes of iron ore, while the Canadian iron ore mines are estimated to have a reserve of 100 million tonnes.

The coal block in Mozambique, in which Tata Steel has a 35-per cent stake, is in the exploratory stage, and the reserve is pegged at 2.1 billion tonnes. The company expects to mine four million tonnes of iron ore in Canada and five-six million tonnes of coal in Mozambique starting next year.

"The strategy is to focus at small mines where the investment would be low and large mines where no investment would be needed in next few years," Muthuraman said.

In the current year, Tata Steel expects to save up to a $1 billion (Rs4,991 crore) at the manufacturing facilities of Corus by reducing manpower, cutting bonuses and restructuring operations. In fiscal 2009, Corus managed to cut $650-$700 million in costs, according to Muthuraman.

Capacity utilisation at the European units, however, is expected to be at 67 per cent in the current fiscal, slightly lower than fiscal 2009 in which it was 75 per cent. The first two quarters are going to be difficult, during which capacity utilization could be as low as 54-65 per cent, Muthuraman said.

Growth at Jamshedpur
Locally, Tata Steel has placed orders for installing a new furnace at its Jamshedpur facility, which will raise the production capacity by three million tonnes to 10 million tonnes a year.

The new furnace, which would be commissioned in April 2011, would cost around Rs15,000 crore, which the company will cover out of its cash flows. ''We have fully provided for it… it is expected to be a 40 per cent EBIDTA (earnings before interest, depreciation, taxes and amortization, which is a measure of operating cash flow) project,'' said Muthuraman.

Speaking about his company's much delayed Orissa project, Muthuraman said work at the project site was expected to start after general elections. Tata Steel had already started conducting soil tests, and had also installed a fabrication unit at the factory site.

He admitted that the project has been delayed by over two years, but added that he was sure iron ore mines would be allotted to his company for the Orissa unit soon.