India's Essar Steel has its foot on as much as 45 billion tonnes of iron ore in Africa after agreeing to pay $US750 million for a majority stake in state-owned Zimbabwe Iron & Steel Co, which has been renamed NewZim Steel (NZS).

Under a deal signed in Zimbabwe earlier this month, Mumbai-based Essar Steel, part of the diversified Essar Group run by the billionaire brothers Shashi and Ravi Ruia, will spend up to $4 billion over the next few years on the steel plant, iron ore mines, a possible ore beneficiation plant, and associated power plants and other infrastructure.

Essar and the Zimbabwe government expect to hold 60 per cent and 40 per cent respectively of NZS after discussions with existing minority shareholders who have a 10 per cent stake.

Essar’s first task will be to rehabilitate Zimbabwe’s ageing steel plant at Redcliff, 260 km southwest of Harare, and restore it over the next three years to its former 1.2 million tonne per annum capacity. The deal also gives it 80 per cent of the mining venture NewZim Minerals - the former Buchwa Iron Mining Co (Bimco) - and the prospect of access to 45 billion tonnes of low-grade iron ore reserves the company holds.

Essar says it will use iron ore from NewZim Minerals’ existing Ripple Creek mine to feed the refurbished Redcliff steel plant and will investigate another deposit at Mwanesi that might be suitable for beneficiation and sale to overseas customers. If so, it said the logical shipment point would be through Mozambique, either by rail or a slurry pipeline.

Mwanesi is a huge but relatively unexplored deposit, with some hematite but mainly average to poor grade ore. Essar estimates a full exploration and testing program over 18 months will cost about US$100 million.

epending on economic feasibility, that could lead to a US$3.5 billion investment in building a large beneficiation plant and related infrastructure, including a 1000 MW thermal power plant.

Before then, Essar will spend about US$115 million over 12-18 months to refurbish the Redcliff plant to initial capacity of 0.5 million tonnes a year, and then a further US$275 million within three years to restore full capacity of 1.2 million tonnes. It said this would include building a new 50 MW multi-fuel cogeneration power plant and an oxygen plant. In the longer term, the goal was to increase the plant’s capacity to 2.5 million tonnes a year.

Essar vice chairman Ravi Ruia, who was in Zimbabwe for the deal’s announcement, called it a “win-win transaction” and said Essar was committed to reviving Zimbabwe’s steel industry.

Essar, which already has steel investments in Canada, the United States and Indonesia that give it global capacity of about 14 million tonnes, aims to lift its Indian steel output from 4.6 million tonnes to 12-14 million tonnes by 2012-13.

Apart from its Zimbabwe foray, Essar announced this month that it has reversed two years of losses at its 4 million-tonne Algoma Steel plant in Canada with a profit in the April-June quarter. It has also just struck a power supply deal in Minnesota as part of its US$1.6 billion project to build an integrated iron ore pelletisation plant on the US state’s Mesabi iron range. In India its is building a pelletisation facility close to Paradeep port in Odisha (formerly Orissa) state that will give it import-export capability.

Essar joins a number of Indian steelmakers with an eye on iron ore, coking coal and thermal coal resources in Africa. Companies such as Tata Steel, Jindal Steel, Coal India and Steel Authority of India have taken, or are looking to take, positions in Africa-focused resources companies.

Tata Steel, for example, began buying into Riversdale Mining from 2007 onwards, to gain access to its coal deposits in Mozambique. Tata subsequently sold its 26 per cent stake to Rio Tinto for a $500 million profit in July this year as part of Rio’s Riversdale takeover, but retains 35 per cent of Riversdale Energy, a unit covering the Benga coal resource in Mozambique’s resource-rich Tete province. Tata can take 40 per cent of the coking coal produced at Benga.

Geoff Hiscock writes on Indian business and is the author of India’s Global Wealth Club and India’s Store Wars, both published by John Wiley & Sons.