BHP Billiton says still in talks for India ore and steel project

2005-05-17

Mon May 16, 2005 2:38 PM GMT+02:00 By Denny Thomas and James Regan BOMBAY/SYDNEY (Reuters) - BHP Billiton, the world's biggest miner, said it was still in talks with South Korea's POSCO on a $10 billion Indian iron ore and steel project, dismissing a report it had pulled out as premature. Monday's Financial Times said the Anglo-Australian group had refused to accept financial conditions laid out by the government in ore-rich Orissa state. If it did walk away, BHP would be washing its hands of India's biggest single foreign direct investment (FDI) project, dealing a blow to the nation's bid to exploit a period of high prices to harness its iron ore reserves for economic growth. India has struggled to attract foreign investment, with neighbouring China's strong economic growth drawing huge amounts of capital. India received just over $4 billion in FDI in the first 10 months of the fiscal year to March, compared with $50 billion for China. But analysts are confident POSCO will eventually choose India for its steel plant, with or without BHP. "This is the usual posturing in deals of this size," said New Delhi-based Saumitra Choudhuri, economic advisor of rating agency ICRA Ltd. "I won't be surprised if the deal reaches the brink, but it will eventually go through." The project would be triple the size of India's previous record foreign direct investment -- the $2.9 billion Dabhol power plant. Dabhol is now mothballed as creditors try to strike a deal with the government. The FT cited an unnamed senior BHP executive in India as saying the government's contract terms made "the opportunity (for us) too small", but officials said talks were continuing. "All we have said publicly is that we were in very early stage discussions and that we are looking at various development opportunities. This remains unchanged," BHP spokeswoman Emma Meade said. STILL EARLY DAYS "We remain interested in this project, but it is still early days," London-based BHP Communications Director Mark Lidiard said. "It's not really possible to put a timeframe on it at this stage. There are a lot of people to go through." BHP was looking at other Indian opportunities in iron ore, bauxite and alumina, he said. "POSCO is our largest customer worldwide, we have an excellent relationship with POSCO," Lidiard said. The FT also said POSCO, the world's fifth-largest steel maker by output, was willing to proceed alone, making up for the $1.2 billion shortfall from its mining partner's withdrawal. A POSCO spokesman declined to comment on this. Before the FT report, Indian media had reported the signing of a preliminary deal had been postponed due to slow decision-making by the state government in providing infrastructure and differences over how much ore could be mined. BHP's representative in India said its arrangement with POSCO hinged on the South Korean firm coming to terms with Orissa. Orissa government officials were unavailable for comment. BHP has said its interest in the project would be limited to the supply of raw steel-making materials and handling facilities. Shares of POSCO fell 2.2 percent at 175,500 won, while the composite Seoul index rose 0.63 percent. "The market had expected a deal with BHP would have allowed POSCO to get iron ore from India at lower prices," said Park Byung-chil, an analyst at Dongwon Securities. POSCO said last month negotiations over iron ore mining were the main hold up for the project, which includes building a 10-million-tonne steel plant, a 30-million-tonne iron ore mine, a mill for making hot rolled coil and a sea port in Orissa. Several India steel producers, including the nation's No. 2 producer, Tata Iron and Steel Company Ltd., have shown interest in setting up a steel plant in mineral-rich Orissa. TISCO has proposed to set up a $3.5 billion steel plant by 2008, with an annual capacity of 5 million tonnes. POSCO planned to start production by the end of 2009 and create 42,000 jobs in Orissa, home to the bulk of India's high-grade iron-ore reserves. Steel demand in India, Asia's fourth-largest economy, is rising as investment in infrastructure increases and demand for housing and durables such as cars and consumer goods soars. Steel consumption in India is expected to more than triple to 100 million tonnes by 2020, having grown at a steady rate of about 5 to 6 percent per year over the last decade.