India's OMC and Rio Tinto in Talks for $1 Billion Iron-Ore Mining Project in Orissa

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Researched by Industrial Info Resources (Sugar Land, Texas)--Orissa Mining Corporation (OMC) (Bhubaneswar, India) and Rio Tinto plc (NYSE:RIO) (London, England) are in talks for a joint venture collaboration on an iron-ore mining project in the Keonjhar district of Orissa. If the collaboration bears fruit, it will be the first footprint of a global mining company in the Indian mineral mining sector.

Officials in OMC said that a draft of a joint venture agreement between OMC and Rio Tinto has been submitted to the state government of Orissa for approval, and that the iron-ore mining project would be complete within 20 months from the date of government approval. The project cost is estimated at $1 billion.

OMC and Rio Tinto entered into a joint venture agreement in 1995 for a 25 million-ton-per-year capacity iron-ore mining project in the Malangtoli reserves in Orissa. But the collaboration could not be implemented because India's largest iron-ore miner, NMDC Limited (BSE:526371) (Hyderabad), also laid claim to the Malangtoli reserves. Subsequent to this, OMC tried to conclude the joint venture with Rio Tinto, which had been legally challenged by the latter.

However, under the new collaboration agreement, OMC plans to leverage Rio Tinto's range of mining expertise to cover other minerals, such as manganese and chrome ore. As for the iron-ore project in Keonjhar, Rio Tinto has proposed importing iron ore and blending it with ore extracted--since Indian ore has high alumina content--and supplying the blended ore to Indian steel mills that do not have captive mines.

OMC has mining leases in 35 locations in Orissa; major minerals mined by the company are chrome, iron ore and manganese. OMC has a reserve of 400 million tons of iron ore; 19 million tons of manganese; 28 million tons of chrome ore; 220 million tons of bauxite; and 19 million tons of limestone. The corporation operates 11 iron-ore mines; five chrome-ore mines; three manganese mines; and one limestone mine. OMC currently produces 7.5 million tons of iron ore and 10 million tons of chrome ore per year. The corporation has commitments to supply iron ore to 21 steel companies that have set up production facilities under a memorandum of understanding with the state government and 21 sponge iron-making companies that do not have an agreement with the state government.

OMC also has announced that it will develop a 2.5 million-ton-per-year standalone iron-ore mine in Daitari, also in the Keonjhar district, and soon will be inviting bids from global investors for development and operation of the mine on a contractual basis.

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