Indian companies to focus on overseas mining acquisitions: E&Y report

Indian companies are likely to focus on acquisition of coal and iron ore assets in the mining space this year, especially in Indonesia, Australia and Africa, according to a report.

E&Y said it expects coal and iron ore are to remain the focus of mining M&A during 2012, although other commodities including copper and zinc will also be targeted.
It added that Indian companies are likely to continue looking to Indonesia, Australia and Africa for growth, increasingly opting to acquire outright rather than simply through off-take agreements.

"In 2011, we witnessed a number of aspiring India-based mining and metals companies continuing to target M&A to sustain growth and become global players in their own right. Despite this, outbound investment slowed during 2011 with many deals struggling to be completed. This was largely due to differing asset valuation expectations and intense competition, rather than a loss of appetite for acquisitions.

The largest deal to be completed in the year was Vedanta Resources' increased stake in Cairn India, bringing its total investment to 58.5 per cent. "While this is not strictly a mining deal, as Cairn India is an oil and gasproducer, it adds scale to, and diversifies, Vedanta's energy operations."

With the exception of the domestic oil and gas deals, coal remained the most targeted commodity by Indian mining and metals companies, representing 94 per cent of India's outbound investments during 2011.

"India is the world's second largest coal producer, and although production is forecast to increase, it remains constrained by environmental regulations and the rate of growth is anticipated to be slower than demand resulting in an estimated coal shortfall of 142 million tonnes in 20121" the report noted.

Therefore, it said that among foreign resource sources, Australia was the most targeted geography and added that coking coal assets continued to be in demand although a number of deals did not complete during 2011 primarily due to strong competition from Chinese investors.

Indian downstream metal operations continued to attract inbound investment. "While we have not seen any significant deals of this nature complete during 2011, JSE announced that it is looking to increase its stake in JSW from 14.9 per cent to 24.9 per ent, in order to access Indian demand."