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Indian Steel Producer to Buy Two Coal Mines and Build up a Factory in Mongolia

The second-largest Indian steel producer is seeking to purchase at least two coking coal mines in Mongolia and build one US$3 billion factory.

According to the Steel Authority of India Ltd., the company aims to buy one mine itself and another through a venture with other state-run metal and energy companies.

Mongolia, holding the world’s largest deposit of steelmaking raw material, is seeking developers to help it feed demand for raw materials from its neighbors, while maintaining control over the deposits. The Tavan Tolgoi region holds more than 6 billion metric tons of coal in the deserts of southern Mongolia.

The state-run Steel Authority Chairman C.S. Verma told reporters that the company asked the Indian government for bi-lateral assistance for the mines, without giving details about the size, location or time of investment.

International Coal Ventures Ltd., in which Steel Authority holds a 26 percent stake, has bid for a Mongolian block estimated to hold 1 billion tons of coal, Steel Secretary P.K. Misra said earlier. As much as 70 percent of the deposit may be coking coal, he said.

India’s biggest steelmakers Tata Steel Ltd., Steel Authority and JSW Steel Ltd. are seeking mines overseas following a surge in the price of coking coal, Bloomberg reports.

Steel Authority, which imports about 70 percent of its requirement, is paying 66 percent more for the fuel this financial year than last year, based on the benchmark prices. The company’s products include pig iron, steel ingots, liquid steel, alloy steel, special steel, stainless steel, ferro alloys, etc.

According to the Eurasia Capital “Mongolia Outlook 2011,” the country produced an impressive performance in 2010, leading globally as the best equity market, second fastest growing economy and the second best performing currency.

Experts expect the Mongolian economy to grow up to 10 percent in 2011 (or 33 percent in US$ terms due to further estimated appreciation of the MNT against the US$) and may continue outperforming, ranking among the top three fastest growing economies.

The primary growth drivers for 2011 will be the US$2.3 billion capital budget (over one-third of Mongolia’s 2010 GDP) allocated by Canadian Ivanhoe Mines and British-Australian Rio Tinto for Oyu Tolgoi, growing investments across the mining sector, the positive outlook for commodity prices, rising export values driven by strong Chinese demand and growth in personal income underpinned by inflows of foreign capital and the expansion in government social payments.

Possible IPOs by leading Mongolian companies and the planned continued privatization of state-owned enterprises over 2011 and beyond will further support Mongolia Stock Exchange performance in 2011.

The report says, the Mongolian currency may appreciate another impressive +10 percent, reaching MNT1,130 per US$ in 2011.

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