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Jindal Steel and Power Ltd on Friday said it has won the development rights of 20 billion tonnes of iron ore reserves in Bolivia and will invest $2.3 billion over the next 10 years for mining and setting up a steel plant in the South American country.
"We have been awarded the rights for the El Mutun iron ore mine... We would invest $1.5 billion in the next five years and $2.3 billion in the next 10 years," Naveen Jindal, JSPL executive vice chairman and MD said from London.
Jindal, who would be going to Bolivia shortly, said the company has been given rights to develop half of the El Mutun mine or 20 billion tonnes of iron ore out of the total 40 billion tonnes of potential reserves.
Located near the Brazilian border, the El Mutun mine is said to be the world's single largest iron ore mine. In fact, the iron ore reserves in the mine is more than double the iron ore reserves of India. Moreover, the reserves are of high-grade ore with iron content of more than 64 per cent.
JSPL CEO Vikrant Gujral and director (Finance) Sushil Maroo said from Bolivian capital La Paz that the mine contains 12 per cent of world's total iron ore reserves and the company would be the largest overseas investor in that country.
The company won the mining rights after the Bolivian government disqualified Netherlands-based world's largest steel maker Mittal Steel Co, which is incidentally headed by another Indian Lakshmi Niwas Mittal.
Jindal said out of the total investment of $2.3 billion, about 20 per cent would be pumped in mining and the balance 80 per cent in setting up the integrated steel plant.
The project would be set up in a debt-equity ratio of 60:40, Jindal said, adding resources would not be a problem. The company may raise borrowings from the international markets if the need arises, he said.
While an agreement has already been signed in La Paz, famous for having one of the world's highest railway lines at an altitude of 14,000 feet, a detailed contract is expected to be signed in July this year.
Giving details of the project, Jindal said the integrated steel plant would produce 1.7 million tonnes of long products of steel, six million tonnes per year of direct reduced iron and a pellet plant of 10 million tonnes capacity.
The company would also set supporting infrastructure including a 400 MW power plant. The Bolivian government has assured all support and supply of natural gas for the project, which is likely to be implemented through a subsidiary. The project would employ 2,000 people directly and another 10,000 indirectly, Jindal said.
Jindal said the company would have to give 8-9 per cent to the Bolivian government as royalty on iron ore and concentrates and 10 per cent on pellets. There were no restrictions on exports of iron ore or steel but the company would have to give 5 per cent royalty on steel exports and 7 per cent on DRI exports, he said.
Jindal said the company had to modify its bid during negotiations with the Bolivian government. Initially, the company had offered 3 per cent royalty on sale of steel and 5 per cent in concentrates but raised it to 5 per cent and 10 per cent respectively later. The offer for iron ore was raised to 10 per cent, he said.
The announcement comes a month after Bolivian President Evo Morales nationalised the country's natural gas sector, the second largest in South America after Venezuela. The El Mutun bid was seen as a test of how that government would handle mining investments.
The Leftist Morales administration wanted bidders to not only extract iron but also set up steel plant using Bolivia's plentiful natural gas. Reports from La Paz said the deal could earn South America's poorest nation more than $250 million a year in exports.
However, Maroo and Gujaral, who signed the deal in La Paz earlier on Friday, did not say how much the country can earn from the project, saying it would be quite substantial for the country, which has a population of only 80 lakh people.
The company expects to earn 15-20 per cent internal rate or return on the investments. Maroo said the project would start production of pellets from the third year (2009) and long steel from 2011. Maximum revenue would start flowing from the fifth year (2011) onwards, he said.