India's JSW Partners with Geo Steel for 175,000-Ton Plant in Republic of Georgia

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Researched by Industrial Info Resources (Sugar Land, Texas)--JSW Steel Limited (BOM:500228) (Mumbai), India's second-largest private steel manufacturer, plans to set up a 175,000-ton-per-year greenfield steel mill to produce reinforcement bar, or rebar, in the Republic of Georgia in partnership with Geo Steel LLC (Rustavi, Georgia). The mill is expected to be commissioned this year and cater to the 500,000-ton-per-year rebar market in Georgia and Armenia. Rebar is used in masonry and reinforced concrete structures. They are formed using carbon steel and are ridged for greater frictional adhesion to concrete.

The steel mill, which will be fitted with an electric arc furnace, will greatly benefit from the availability of inexpensive hydroelectric power in Georgia. The country is also a major exporter of scrap, which is used as input material for electric arc furnaces. The $42 million project will procure funding through a 2:1 debt-to-equity ratio. JSW and Geo will invest $7 million each through direct equity. JSW will hold 49% of the equity, and Geo will hold 51%. The European Bank for Reconstruction and Development has agreed to provide 50% of the total debt amount of $28 million. JSW expects the plant to start generating revenue by 2009-10.

The proposed steel unit in Georgia is in line with JSW's strategy of increasing total production capacity from the current 4.2 million tons per year to 32 million tons per year by 2020. The company is expected to achieve its target production of 7.8 million tons per year by October. JSW will invest up to $3.5 billion toward capital expenditures by 2010. Nearly $1.45 billion will be invested in various development and expansion initiatives this year, of which $750 million will be procured through debt-financing and the rest as equity. JSW has already invested $2.4 billion over the last 18 months.

The company also aims to achieve self-sufficiency in iron ore and coking coal. Through a wholly owned subsidiary in The Netherlands, it acquired eight concessions to explore and exploit iron ore deposits over an area of 1,200 hectares in the mines at Atacama, Chile. JSW plans to invest $500 million over the next three years toward capacity expansions at these mines to achieve a production of 20 million tons per year. The mines have an estimated deposit of more than 500 million tons. JSW also holds a 70% stake in Santa Fe Mining (Chile). The company plans to export the ore from Chile to China and source iron ore at international prices from the domestic market. JSW has also acquired coking coal blocks in Mozambique. It is currently exploring the blocks, which have estimated reserves of 400 million tons. Commercial operations in these blocks are likely to begin by the end of this year.

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